Demography set to play key role in GCC growth

The demography of the GCC will play a crucial role in the economic growth and future of the region, a research report said.

However, countries where demographic growth is strong also have to deal with the problem of the dependency ratio, said the latest Indosuez Wealth Management research report, 'Macro Comment - Mena Update'.

In GCC countries, dependency ratio is deteriorating due to the high young population and the relative pressure on the productive population, the study noted.

"The issue to be tackled by 2050 will be the explosion in the population aged 65 and over. In Kuwait, the ratio between people aged 65 and over and the 15-64 age group was 2.6 in 2015, but will be close to 20 in 35 years' time," it said.

"There are some interesting observations for the GCC region when we link demographics with financial markets. Replacing the investment horizon linked to the economic cycle by a longer and more structural timeframe enables us to play other variables - technology, to which productivity is linked, the climate and demography. Interestingly, demography enables us to differentiate regions or countries - locations that benefit from the highest demographic growth are potentially the most advantageous to economic growth. In this context, the US appears to be one of the countries whose decline is furthest away in the future, while Saudi Arabia currently has a high population growth rate of around 1.3 per cent per annum," said Dr Paul Wetterwald, chief economist, Indosuez Wealth Management.

The study said the question at the country level is whether immigration will be able to offset the ageing population.

"Various bodies like the OECD has identified that an increased working population is one of the positive effects of immigration. However, using immigration seems easy if one just adds up the figures, but this disregards the creation of social ties that goes hand in hand with the arrival of immigrants. Hence, it seems unrealistic to consider that immigration will occur on a scale such as to stabilise the dependency ratio. Moreover, if such a solution were to occur at the country or regional level, it would obviously not resolve the problems of falling birth rates at the global level," it said.

Dr Wetterwald pointed out that the GCC countries have already used the immigration tool in a major way. "For instance, Saudi Arabia has a population of around 28 million, of which more than 30 per cent are immigrants. With 47 per cent residents below the age of 25 years, the kingdom's demographics are characterised by a young and fast-growing population," he said.

The study noted that on one hand, the Saudi population growth was generated by immigration and on the other hand by a fertility rate of 2.1 children per woman. Although the foreign population size is high compared to the OECD countries' average, other GCC countries are far more dependent on foreign labour than Saudi Arabia, it said.

"While Kuwait and Qatar featured a remarkable 80 per cent of immigrant population in 2010, the proportion of foreigners in the GCC countries reached 42.7 per cent in 2010, compared to 9.7 per cent in 1975.

According to the report, one issue is that the oil sector is not labour-intensive, and that many Saudis have no interest in the jobs that most migrant workers occupy. "Having invested in improving the education of its citizens, Saudi Arabia now has to develop the employment opportunities that its graduates crave, and more generally work on reducing the mismatch of skills to job openings that prevail in the kingdom."

The study noted that two salient facts hamper Saudi dynamism - women's low participation in the work force and an excessive unemployment rate among the young population. Women represent 22 per cent of the labour force and are unemployed nine times more frequently than men. Youth unemployment (15-24 years) stands at 30.4 per cent, five times the 5.6 per cent rate of those aged 25 to 64 years.

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Issac John Associate Business Editor of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.