The Silver Lining, in the Emerging ‘Silver Economy’0 97
By: Dr. Kenneth De Zilwa
It has become a fad to argue that political and corporate leaders ought to be younger, the world around us has undergone extensive change over the past few decades. In the context of population ageing experienced in many parts of the world, it is argued in political and business realms that leaders require to be more age appropriate and not aged. The old guard, it is contended, is not in keeping with the winds of rapid technological transformation that is taking place.
The 21st century business leadership belongs to the youth who are keeping abreast with technological innovations, robotics, and artificial intelligence in the corporate world. The global economic system seems to be sending out signals suggesting a need for change in the age composition of political and corporate leadership.
Yet there are tendencies in the world today to embark upon a new strategy of capturing the potential of the silver economy which is estimated to be USD 15 trillion per year by 2020. The silver economy is thus becoming a significant mega trend that is shaping the world. In contrast to the past, we are living in an unprecedented era of the global longevity cycle. The age composition of world leaders and policy makers shaping this thought process is indicative of the fact that as the world population is ageing, & more and more business and political leaders will invariably be those with silver hair tips, representing the silver economic ethos. The data indicates that by 2050 the population segment of silver tips, i.e. those above the age of 60 years, will double from its current 890 million to reach 2 billion people, thereby accounting for 22percent of the global population. The UNDP projections also indicate that between 2018 and 2040, China’s 65+ population would jump by almost 150 percent, from 135 to 340 million. Thus by 2040, China will be a “super aged society” with 25 percent of its people being 62 years of age or older, while the Asia-Pacific region would be home to approximately 1.2 billion older people out of a total of 2.1 billion worldwide in that category by the year 2050. It’s not only the sheer numbers of individuals, but the sheer spending power of the silver hair tips that plays an even more important part in shaping global mega trends. According to Merrill Lynch, the investment bankers, the silver economy will grow from its current USD 7 trillion to a population segment with the spending power of USD 15 trillion per year by 2020. This would amount to approximately 16.4 percent of World GDP. Such will be the scale and influence of this market segment.
China and India are two large countries with India occupying a greater part of South Asia. China has its territory spanning across East Asia. The two countries together, account for 36pct of global population. China has sustained double digit GDP growth for 30 years up to 2010. India on the other hand, has grown at half the Chinese growth-rate over the same period. China has consolidated its global position becoming the second largest economy in the global landscape. In contrast, India is counted the seventh largest economy as of now, having bypassed many established economies in the traditional developed world. The economic production values and population size of these two countries make them a significant catalyst for driving global growth trends.
Many have spoken about China and its phenomenal ascent on to the global economic stage. It is common knowledge now that China would dislodge the USA from the number one position in the global ranking of economies and would come to dominate the world GDP by 2030. There is no doubt that China has been the most extraordinary growth story in the history of mankind. It has become a classic model of development economics too. For liberating 600 million people from poverty in a span of 40 years, building of course on the socialist foundations laid down since 1949, is an achievement no other democracy can boast of.
The China growth story i.e. profit story, shows that state enterprises need not necessarily be a hindrance to growth, rather they can make the difference; that public investments on infrastructure provides the big push; that import substitution is as important as exports to exploit to full advantage the advances in technology, investment and trade for economic progress; and that state-guided market forces are development friendly. This success story and underlying business cycle fundamentals continue to unfold at a rapid pace across all asset markets. Many economic commentators and businesses alike share the sentiment that China’s dominance would continue in the next 50 years.
A careful analysis of past trends seems to highlight another view. I tend to argue that India would be the next Asian miracle in terms of its Global growth story i.e. profit story, and would match China in 30 years i.e. by 2050. Imagine the emerging Asian economic landscape with China and India free of poverty, with full employment and giving leadership to a new economic order, replacing the hegemony of the West.
Population projections indicate that by 2050, India would have a population of 1,730 million whereas China would reach a population saturation point of 1,400 million (East Asian Forum.Org). These two countries combined would account for 36pct of the world population by this time. This would be a rich population, with new aspirations and changing lifestyles.
Demographic data show that India would be endowed with a relatively younger population compared to that of China (Table-1). India’s young workforce with knowledge and skills would be India’s strength. Those between 15 and 64, are expected to rise from around 64pct of its population in 2009 to 70pct in 2020. Meanwhile, China’s relatively cheap and semi-skilled cohorts of population are expected to start declining from 2014, resulting in labor shortfalls by 2050. This would mean that a more intellectually hungry, urban based middle class would take over the driving of India’s profit story and would unleash a wave of innovation in the sphere of manufacturing, technology and music and film industry. One expects an Indian resurgence in the horizon waiting to explode on the world stage.
By 2050 the Indian economy would be in a much stronger position with leading brands such as Tata, Maruti, Godrej, Infosys, Amul, Bajaj, Ashok Leyland, Asian Paints, Dabur, Apollo Tyres, Britannia, and the zestful Bollywood influencing the world on a much larger scale than what we have seen so far. In this expected scenario India would outpace China by growing at a compound rate of 8.50pct (Table-2) and would reach USD 57.2 trillion with a per capita income of USD 33,700. China in the meantime would struggle to consolidate its current growth momentum over the next 20 to 30 years. It would grow at a compounded growth rate of that of an advanced economy, growing at 3.3pct reaching 47.6 trillion USD dollars with a per capita income of USD 33,900. When compared, the numbers added together are staggering. Additionally, when we look at the merchandise trade turnover between China and India the data indicates these two countries would account for circa 30pct (USD 100 Trillion) of world merchandise exports by 2055 from its current 14.5pct.
In fact data indicates that China’s economy is already showing signs of losing steam. Slowing down has commenced, with 2018 data indicating that it grew at the weakest pace since the first quarter of 2009. This slowing down has been caused by the higher base effect, growing costs of production and labor costs are now seeping into the real economy. Chinese companies have begun to search for other Asian and South Asian economies to house their industries affected by high domestic production costs. This is an indication of how China would now be challenged in the competitive capitalist environment. A declining profit story would only compound the longer term growth trajectory (Figure-1). Added to the Chinese woes is their new breed of westernized economists who are now showing signs of losing sight of its competitive advantage obtained over the golden years of development.
Undeniable Asian Dominance in 2055
The rise of Asia spurred by India and China is inevitable, therefore Asian economies/policy makers and businesses should gradually look at their business models, cultural and geopolitical linkages and synergies thereby carving out their growth plans to suit the new world order by 2055 given that the US will be the only western country to make it into the top five economies in the world.
Whatever the superficial debates that are out there, the ground realities are undeniable and must be taken seriously or we will definitely be left behind in the dinosaur era. It is therefore crucial that Sri Lankan policy makers value both India and China as they are in the Asian continent with significant consumer markets and a burgeoning middle class fueled up with an appetite for modernity. These consumers will be pleasantly drumming up the tune of the Asian Century of World Dominance and we must be ready to dance to the beat. This outcome is indeed sweet music to the ears of Asians (Global Sri Lankans). Unfortunately, many of Sri Lankan and Asian business models are ill-prepared for this eventual reality of the Asian Century.
The country key drive has been the construction industry which accounts for 7pct of GDP. The housing sector also absorbs circa 23pct of the banking sector credit. The quarterly data indicates that the sector contracted by 5pct. A proxy for the industry is the core raw material, namely cement, during the period under review the total cement supply has decreased by 3.55 pct. during the first quarter of 2018. The total imports of cement and the domestic supply of cement has dropped by 3.16 pct. and 4.22 pct. respectively in the first quarter of 2018.
The overall segment of property seems to be depressed with many property developers and engineering, construction companies grappling with fiscal policy squeeze as result of the increase in corporate tax, turnover tax and other taxes (WHT, NBT) which has resulted in an effective tax rate of 67pct vs 21pct in 2014. The situation is further compounded with higher balance sheet debt and the rising cost of production due to the YTD rupee depreciation of 5.9pct
The depressed undertone in the construction industry is reflected the published Central Bank business survey together with the Greater Colombo Housing and Apartment Index. 2019 too does not seem to offer much sparkle to the sector with higher real interest rates and contraction in credit.