Demographic dividend or disaster: Challenges for Bangladesh

Demographic dividend, as defined by the United Nations Population Fund (UNFPA), means "the economic growth potential that can result from shifts in a population's age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older)." Demographic Dividend refers to a period - usually 20 to 30 years; when fertility rates fall due to significant reductions in child and infant mortality rates. As women and families realise that fewer children will die during infancy or childhood, they begin to have fewer children to reach their desired number of offsprings, further reducing the proportion of non-productive dependents. This fall is often accompanied by an extension in average life expectancy that increases the portion of the population that is in the working age group. This cuts spending on dependents and spurs economic growth. In other words, demographic dividend is a boost in economic productivity that occurs when there are greater numbers of people in the workforce than the number of dependents. UNFPA has avowed that a country with both increasing numbers of young people and declining fertility has the potential to reap a demographic dividend.

Jobs still inadequate for 106 million working-age population in Bangladesh
Bangladesh has experienced a dramatic decline in fertility and mortality rates during the last four decades. Total fertility rate (TFR) declined by 63.5 per cent to 2.3 in 2010 during 1970-2010. During the same period contraceptive prevalence rate (CPR) increased by 695 per cent to 61.2 per cent in 2011. During 1970-2010 mortality also declined significantly. The infant mortality rate and under-five mortality has declined by at least 74 per cent to 38 and 78.7 per cent to 47 in 2010 per 1000 live births respectively, while the maternal mortality ratio declined by 63 per cent to 240 per 100000 live births in 2010. During the same period life expectancy at birth increased by 33.6 per cent to 70.2 years in 2010. This has produced a huge shift in age structure of the population, with more population in working ages than in dependent ages. Dependents per 100 working population declined from over 100 in 1961 to 60 in 2010. This has created an economic opportunity that can be expressed as demographic dividend of Bangladesh. In another study on Demographic Transition and Demographic Dividend in Bangladesh: 1950-2100, using the UN projections (2010 Revision), all the variants of population projections show demographic dividend in Bangladesh started in 1980 and according to the low variant it will end in 2035 and according to the medium and high variants it will end in 2040. So, Bangladesh has already experienced three decades of demographic dividend. The country is at the midway point of the dividend period. There are more than three decades to pass on.

International Population Conference, 2009 predicted that the countries in South Asia would acquire a demographic dividend for a period, on an average, of 50 years. Among the countries, on an average, Bangladesh would acquire the highest dividend which is estimated at around 1.0 per cent during the period of 1980-2020.
Demographic dividend helps improve living standards of the population through increased: (i) Capital formation, (ii) Savings and investment,(iii) Female participation in labour force, (iv) Improved quality of labour force, (v) Slowing unsustainable fractionalising of holding and releasing pressure of absorbing the growing labour force on limited agricultural land, and (vi) Increased demand for goods and services. Thomas Malthus (1766-1834), the British economist who predicted in 1898 mass starvation, wars and epidemics unless population growth was controlled, has been emphatically proven wrong. In fact at the time of his forecast, the world was on the brink of an enormous advance in both prosperity and population. Between 1820 and 1920, world population increased five-fold, and world economies grew forty-fold. Some people today, especially rich people, still worship Malthus. But the fact is, says his fellow British PM Margaret Thatcher (1925-2013), more and more people today are threatened by obesity, than by starvation. Less farmland is producing more food.
Neo classical economists have, however identified four distinct ways the benefits of demographic dividend can be achieved.
1. The first is the increased labour supply. However, the magnitude of this benefit appears to be dependent on the ability of the economy to absorb and productively employ the extra workers rather than be a pure demographic gift.
2. The second mechanism is the increase in savings. As the number of dependents decreases, individuals can save more. This increase in national savings rates increases the stock of capital in developing countries already facing shortages of capital and leads to higher productivity as the accumulated capital is invested.
3. The third mechanism is human capital. Decreases in fertility rates result in healthier women and fewer economic pressures at home. This also allows parents to invest more resources per child, leading to better health and educational outcomes.
4. The fourth mechanism for growth is the increasing domestic demand brought about by the increasing GDP per capita and the decreasing dependency ratio.
There is a strategic urgency to put in place policies which take advantage of the demographic dividend for most countries. This urgency stems from the relatively small window of opportunity countries have to plan for the demographic dividend when many in their population are still young, prior to entering the work force. During this short opportunity, countries traditionally try to promote investments which will help these young people be more productive during their working years. Failure to provide opportunities to the growing young population will result in rising unemployment and an increased risk of social upheaval.
The 'demographic dividend' is unlikely to last long, as has been the case earlier with all other countries. This 'dividend' at present provides an opportunity to Bangladesh to make use of its working-age population for productive socio-economic activities. But the opportunity and the reality are not synonymous. For translating this opportunity into a reality, investment in both public and private sectors is one of the most critical factors. Besides, macro-economic strains, deficit of infrastructural facilities, problems about access to land, corruption, scratchy tax administration and political instability are impediments to boosting investments. All such factors merit a simultaneous attention to help create a synergy that can lead to a virtuous cycle of more investments, more jobs and more growth.
It is premised that demographic transition has significant effect on investment in human capital. Increasing life expectancy makes parents invest more in their children's human capital as the premium of higher education increases and lasts longer. As a consequence, the labour force becomes more productive, gets higher wages and there is improvement in the standard of living With shrinking of young population, the pressure on the education system is reduced, which can help countries to invest more in improving the quality of education at higher levels, rather than making investment in basic education. It cannot be emphasised enough that it is not the quantity but the quality of education that is more important for human capital formation and economic growth.
Demographic dividend is the window of opportunity that opens for a population only once. How much benefit Bangladesh will realise from this demographic dividend depends on employment opportunities in the economy. If there is little employment opportunities, a large part of the increased labour force will remain unemployed, hindering the benefit to be reaped from demographic dividend. Benefits of demographic dividend also depend on human resource development. Bangladesh has to concentrate on developing several policies for all levels of education including vocational education and training to create a skilled workforce. If Bangladesh fails to grab this opportunity immediately, this young population could create a disastrous hazard for the nation.
In Bangladesh some 47.6 million or 30 per cent of the total 158.5 million people are young (10-24 years), and it will be between 10 and 19 per cent by 2050, according to the United Nations Population Fund (UNFPA) report on March 11, 2014. This means that Bangladesh needs to invest right now in the human capital of its young people if it wants to reap the benefits of a large demographic dividend. A failure to act on these issues could have a damaging effect on future prospects, as unemployment rises, the social fabric crumbles, and rising numbers of old people begin to overwhelm available resources. Embracing and understanding demographic challenges must therefore be a priority for the government. According to the UNFPA report, despite the government's greater attention to them, the youths still confront many obstacles that keep them from safely transitioning into adulthood and the workforce. In Bangladesh, two million young people enter the labour market every year, but a large number of them are either jobless or have irregular jobs (Population Council, 2014). It is obvious to everyone that our youths havethe ability to reach their potential if they are guided properly.
Unfortunately this is not often the case. Some recent studies assimilate that due to poverty many children cannot finish their high school education; if they are girls they are married off and if boys they are sent to work.
It is completely up to the government to ensure that these kids at least finish high school education and enter a college or receive technical education at vocational schools by giving appropriate subsidies. For economic benefits to materialise there is a need for policies dealing with education, public health, and those that promote labour market flexibility and provide incentives for investment and savings. On the contrary, if appropriate policies are not formulated, the demographic dividend might, in fact, be a cost, leading to unemployment and an unbearable strain on education, health, and old age security. Bangladesh should reap the benefits of a "demographic dividend," as the relative share of the working-age population increases. Whether Bangladesh can benefit from this dividend will depend on the quality of its human capital. Without a skilled labour force, Bangladesh's demographics could turn into a liability rather than an asset. Demographic dividends are not automatic. To realise the dividends, the nation should need to have an educated, healthy and productive labour force. Only new and enhanced infrastructure will provide jobs, increase attractiveness for foreign direct investment, improve productivity and urbanisation, and ultimately, connect us to the global economic markets which Bangladesh desperately needs to access. Bangladesh needs to adopt an expansionary economic policy so that it can increase production, productivity and consequent employment generation for future workforce through higher investment in the above-mentioned sectors. This massive number of young working people, if provided jobs, will definitely generate economic activity. In order for vocational training to be successful, the successes can be achieved utilising the labour market, a knowledge-based economy, the struggle against social inequality as well as the awareness about a combined and highly qualified vocational framework. Having all those things present to some extent in Bangladesh, the country has been suffering from lack of skilled manpower due to the poor formulation and implementation of strategies. If the country wants to achieve a competitive advantage through its large workforce, then there is no alternative to transformation of the manpower into human resources by proper implementation of vocational education and training. Galor and Weil (2000) characterise the demographic transition as going through stages. Before the transition, population growth has a negative impact on economic growth. Once the transition is underway, higher life expectancy accelerates growth by favouring human capital accumulation and increasing total factor productivity. The changing age structure favours savings, higher female labour force participation, and lower fertility rates. Additionally, with declines in child mortality, children come to be seen as "consumption" rather than "investment", and parents prefer fewer children, but place greater emphasis on the quality of education and health. This increases productivity. Another strand of the literature characterises demographic transitions as a window of opportunity to earn a demographic dividend, if good policies are in place. Without proper policies, the increase in working age share may lead to rising unemployment and fuel economic and social risks. Efficiently channeling the savings from the demographic transition and preparing for an aging population by making good use of pension assets can also contribute to economic growth. From the above studies it is clear that demographic dividend is a very important issue in Bangladesh right now.

The benefits of 'demographic dividend', however, must not be understood only in terms of additional numbers of jobs created. Quality of such jobs, gender participation, future growth momentum and its dynamism etc., are all important points for consideration. Creation of higher productivity jobs, intermediation of savings of the existing working-age population for investment in infrastructures and institutions, creation of greater opportunities for female labour force participation in high productivity decent jobs, etc., matter here. There is little scope to waste time by postponing hard, effective and decisive actions to make all these things happen sooner rather than later. Otherwise, the 'demographic dividend' will be lost as the current bulge in the country's working-age population will transform into a bulge in the elderly population within the next one decade or so.
Furthermore, making the best out of the current 'demographic dividend' that Bangladesh enjoys is vitally important so that it can take timely steps for operating a funded pension system that will take care of the elderly. Once the demographics change, an ageing population scenario will emerge that requires huge resources to look after the needs of the elderly. In fact, there is a strong need for funding pension and other retirement funds, involving the insurance companies in Bangladesh, for employees in government, public and private sector agencies. And steps for this must be taken and made effective before the period of 'demographic dividend' in Bangladesh is over. Otherwise, things are most likely to turn for the worse, making it quite challenging to provide the much needed social security benefits or protection to the elderly population at, or upon, retirement. Policymakers and social scientists optimistically discuss the demographic dividend as if the benefits are imminent and within grasp. However, many developing countries, including Bangladesh, will not be able to achieve this economic benefit without appropriate policies and substantial investments in a number of areas. Indeed, as recent development history suggests that the demographic dividend is wasted if such policies and investments are not in place.
The savings and investment scenario (in comparison with major Macro Economic Indicators) in Bangladesh in last four decades is given in figure below:
Economic returns are not the sole function of demographic dividend. For economic benefits to materialise there is a need for policies dealing with education, public health and those that promote labour market flexibility, and provide incentives for investment and savings. On the contrary, if appropriate policies are not formulated demographic dividend might, in fact, be a cost , leading to unemployment and an unbearable strain on education, health and old age security.
Challenges of demographic dividend: However, the opportunity and the reality are not synonymous. How much benefit Bangladesh will realise from this demographic dividend depends, among others, on the employment opportunities in the economy. If there are little employment opportunities, a large part of the increased labour force will remain unemployed, hindering the benefit to be reaped from demographic dividend.
Policymakers, researchers, and other stakeholders optimistically discuss the demographic dividend. Most view the benefits as imminent and within grasp. However, many of the least developed countries will be challenged to achieve this economic benefit without substantially lowering birth and child death rates-a process referred to as the "demographic transition." While child survival has greatly improved in developing countries, birth rates remain high in many of them. To reach their full economic potential, these countries must act today to increase their commitment to and investment in voluntary family planning.
Bangladesh is unable to exploit the full potential of the demographic dividend as it cannot create adequate jobs for the working-age population, according to economists and population scientists. They suggested taking up measures including large-scale investments in education and health sectors to cash in on the demographic dividend.
Some of the East and South-East Asian countries have invested heavily in human resource development, in particular education and health, to achieve a higher economic growth rate during their time of demographic dividend when most citizens work. According to the experts, the size of working-age population of Bangladesh would start to decline and the country may not get this dividend again in future. China, Japan and many other countries have reaped the demographic dividend to develop their economies but in Bangladesh, things are not on right track.
Bangladesh's economy has been doing well for the last several years but currently its job growth is the slowest in two decades. With about 7.0 million people underutilised, Bangladesh observed the World Population Day 2017 with the theme "Family Planning: Empowering People, Developing Nations". The country could add only 1.4 million jobs between 2013 and 2015-16, down from 4.0 million jobs it had added between 2010 and 2013, according to the latest data of Bangladesh Bureau of Statistics' Labour Force Survey.
The sluggish job creation has raised questions about the high economic growth figures being recorded, with some economists terming the phenomenon "jobless growth". Economists and social scientists have identified the reasons for not taking advantage of the demographic dividend, including a faulty education system, increasing unemployment, and a huge underemployment rate, country's mid-level job market was gradually being occupied by foreign manpower in some sectors, which is a reason for worry. There should be no reasons for becoming complacent with the demographic dividend. There has been a misconception regarding demographic dividend; people think Bangladesh has got the dividend and it would have it forever. The country has now more producers than consumers and it has got the window of demographic dividend but has to transform it into economic dividend.. Bangladesh government has set a target to become a higher income country by 2041, but it will be possible only if it can properly utilise the manpower. If the birth rate continued to drop as it has been, then the dividend might expire sooner due to decreasing labour supply. Experts say , "We are already late for formulating a proper plan to utilise the manpower even though the government has taken some initiatives. The government should have multi-sectoral focus, with special attention to education and health. Education should be skill and market-oriented, not certificate-oriented". According to SDG Index & Dashboards Report 2017 of the UN Sustainable Development Solutions Network, out of 157 countries, Bangladesh ranked 120. The report marked 10 of 17 development goals of Bangladesh in red, indicating that the country needs to overcome major challenges to meet the goals. The red-marked goals are: zero hunger; good health and well-being; quality education; affordable and clean energy; decent work and economic growth; industry, innovation and infrastructure; sustainable cities and communities; life below water; peace, justice and strong institutions; and partnership for the goals. Bangladesh has emerged as a major exporter of skilled, semi-skilled and unskilled labour but most of the export to more than 22 countries is unskilled labour. A coordinated and well thought-out plan was required in four sectors -- quality manpower export, expansion of private sector, and expansion of government sector and opportunity creation for the self entrepreneurship -- to get maximum dividends.
Bangladesh is expected to have 78 million workers by 2025, up from 56.7 million in 2010, of whom two-thirds have only minimal education and 4.0 per cent have received any kind of training. There are few people in the labour market with technical/vocational qualifications; the 2002-03 Labour Force Survey estimated only 53,000 such men and 5,000 such women. Now in Bangladesh there are overall 121 government institutes and 1,473 private institutes for vocational education and training.
Bangladesh may suffer a bit from aging problem by the year 2050, slightly losing the demographic dividend of having more young population, suggests a UN report. By the middle of the current century, the country's population with over 60 years of age will rise three times -- 21 per cent of the aggregate population, said the report published by the UN's department of economic and social affairs. Percentage of older persons among total population indicates the pace of ageing. It is an indicator on the basis of which it is possible to say at what pace ageing is taking place and its intensity. The percentage of the elderly population is increasing with the advancement of time. The percentage of the elderly population in 2050 might be about three times higher than the percentage in 2000. The key point here is that the elderly population keeps growing and will continue to grow. The percentage of the elderly population has steadily and slowly decreased over the past half century,which was 6.2 per cent in 1950, 5.5 per cent in 1975 and 4.9 per cent in 2000. Age structural transition will give an opportunity and policy makers should take advantage of it to reformulate their social and economic policies. In order to meet the challenges in the future, it is important to exploit the window of opportunity available for a relatively short period, a one-time gift from demographic transition with appropriate economic and social policies.
For example, China's current independence ratio of 38 is unprecedentedly low. This represents the number of dependents, children, and people over 65, per 100 working adults. This implies that there are nearly twice as many working age people as the rest of the entire population combined. This historically low dependency ratio has been extremely beneficial for China's unprecedented period of economic growth. This dramatic shift was brought about largely in part due to China's one-child policy. As a result, China is currently aging at an unprecedented rate. China will be older than the United States by 2020 and than Europe by 2030. Combined with the sex-selective abortions widely practised as a result of the one child-policy - China will have 96.5 million men in their 20s in 2025 but only 80.3 million young women - China's future demography holds many challenges for the Chinese government.
To ensure the maximum utilisation of the youth work force, capital investment in infrastructure, improved technology, manufacturing plant, market liberalisation, etc are essential. Major policy thrust is required for ensuring proper role of young people in the socio-economic development of the country. Rising employment opportunity and more productive and more remunerative employment creation is required. Creating an environment for external investment is required so that more jobs will be created in different sectors. Creation of young entrepreneurs can be an important route to youth employment generation. Emergence of young entrepreneurs can also act as a stimulus for economic growth and this strategy is receiving attention worldwide. The vocational education and training system should be flexible and adapt to market needs. Newly emerging sectors should be identified and emphasis should be given to these sectors. General business skills and management training for all VET graduates is very important. Because they lack these skills, most employed graduates fail to get promoted. This further discourages better students from entering the VET system. More attention needs to be paid at all levels of education to improving critical thinking and problem solving skills and to raising English abilities to university standards.
The already adult and not-yet-skilled cohort of worker needs to be absorbed into the economy through expanded opportunities in the labour-intensive sector. To prevent diminution of the demographic dividend potential by the present youth bulge, this generation and those that follow it should be encouraged and enabled to finance their consumption needs in old age. These may take the form of creating or expanding private pension plans or modifying tax treatment of income to incentivise savings. To capitalise on the demographic dividend we need to create a growth-conducive environment through economic policies, like free trade, diversification of trade policies, investment in infrastructure, etc. To integrate new workers in the economy through labour policy the economy has to ensure that new jobs are progressively created in more knowledge-intensive sectors with greater added value as the educational quality of the population increases. To prolong the demographic dividend through economic policies there is a strong need to reinforce policies to promote private savings among the aging working population to finance their retirement. Also through employment policies the working age may be scaled up to prolong the demographic dividend. Making the best out of the current demographic dividend that Bangladesh enjoys is vitally important so that it can take timely steps for operating a funded pension system that will take care of the elderly. Once the demographics change, an ageing population scenario will emerge that requires huge resources to look after the needs of the elderly.
Sustainable development goals cannot be achieved without assuring that all women and men, and girls and boys, enjoy the dignity and human rights to expand their capabilities, secure their reproductive health and rights, find decent work, and contribute to economic growth. Developing policies and investments to secure that future requires that governments know the size, sex, location and age structure of their present and future populations.
Countries with the greatest demographic opportunity for development are those entering a period in which the working-age population has good health, quality education, decent employment and a lower proportion of young dependents. Smaller numbers of children per household generally lead to larger investments per child, more freedom for women to enter the formal workforce and more household savings for old age. When this happens, the national economic payoff can be substantial.
Necessary investments: Realising a demographic dividend requires multiple investments. The most essential are building the capabilities of people and ensuring their rights and freedoms to achieve their potential. Young people need the chance to gain the education and experience to succeed in a competitive global workplace, which demands more skills, education and technical expertise than ever before.
Tragically, the chance to realise one's potential is often derailed, particularly for millions of girls, who are pushed from school, subjected to child marriage , early and unplanned pregnancies, poor access to health care and limited education. When large numbers of people find themselves trapped in this trajectory of restricted opportunities, poor health and limited capabilities, there can be no demographic dividend: An age structure with fewer dependents is unlikely to occur, and each person's ability to develop their capabilities, save and invest, be resilient in the face of crises and take the risk to innovate will be permanently undermined.
History shows there is a real possibility of countries missing their chance at a dividend. The opportunity to reap a demographic dividend occurs during a finite window that gradually closes as the working generation ages. For example, the late twentieth century saw a demographic dividend in Asia. Gross domestic product increased sevenfold, an economic boom described as the "Asian economic miracle." However, in Latin America around the same time, growth was only twofold, reflecting unequal access to investments in education and health, including the reproductive health and rights of women and girls.
Achieving a demographic dividend requires that each a country understands the size and distribution of its population, its current and projected age structure, and the pace of population growth. A growing number of analytic tools are available for such "population assessments," shortening the time and resources needed for a situation analysis of national circumstances. National needs must be matched to a sequence of short- and medium-term investments that assure the rights of all young people to plan their lives, be free of violence and trauma, be assured of essential freedoms and reproductive rights, and have access to quality education and mentoring.
Managing the dividends wisely: How much of the first dividend is realised during this demographic window of opportunity hinging on key features of the economic life cycle. The productivity of young adults depends on schooling decisions, employment practices, the timing and level of childbearing, and policies that make it easier for young parents to work. Productivity at older ages depends on health and disability, tax incentives and disincentives, and, particularly, the structure of pension programmes and retirement policies. On the consumption side, some countries, like those in East Asia, place a high value on education expenditures for children. Other countries, like the United States, devote a large share of resources to health care for the elderly.
How much of the second dividend is realised depends on how a society supports its elderly. In the developing world, the elderly are supported by their families and the public sector, but, in addition, they depend on assets they have accumulated during their working years-housing, funded pensions, and personal savings, among other things. As populations age, the support burden placed on families and governments will increase relative to GDP, a matter of great concern in many countries. But through the second dividend, increased numbers of middle-aged workers may substantially raise capital relative to GDP if policies encourage workers to save for their retirement.
To the extent that Bangladesh meets the challenge of aging by expanding unfunded familial or public transfer programmes, asset growth will be reduced, and the second dividend will be diminished. By contrast, if workers are encouraged to save and accumulate pension funds, population aging can boost capital per worker, productivity growth, and per capita income. Thus, policymakers, especially in developing countries like Bangladesh, will need to focus on establishing financial systems that are sound, trusted, and accessible to the millions who wish to secure their financial future. The time to do so is now so that, as the population ages, its growth-inducing potential will be realised.
Dr Abdul Mazid is a former secretary and former chairman of the National Board of Revenue (NBR). [email protected]