Distinguished Speaker Seminar - Mahani Zainal Abidin – The Impact of Changing Demographics and Need for Human Capital in Asia’s Development

Mahani Zainal Abidin, Director-General, Institute of Strategic and International Studies, Malaysia, discussed the impact of changing demographics and need for human capital in Asia’s development at a distinguished speaker seminar on 25 March 2008. Her presentation especially focused on demographics as a determining factor for Asia's future while addressing distinctive features of demographic trends in Asia.

Ms Mahani first noted two contrasting demographic trends in Asia: North East Asian countries have been experiencing falling population growth rates and a growing aging population while the rest have high population growth rates with a relatively young population age structure. At the same time, substantial level of migration flows is seen, particularly in South East Asia.

Asia has currently 3.4 billion people or 57% of the world’s population. Increasing female labor force participation rate and urbanization have led to a decline in fertility rates and a change, family support system and social norms as seen in the event like higher divorce rate and late/non-marriage. The changing demographic trend has increased the needs for public and private pension system for old age protection since family support system is declining.

Ms Mahani argued that the changing demographics will be determining factors for Asia's future. She identified five key issues: human capital; consumer market and consumerism; aging population; migration; and rise of new economic powers. To sustain high rate of economic growth, Asia has to supplement its labor-intensive industrialization strategy with high skill, technology-intensive and high value added industrialization. This requires heavy investment in education at all levels. Given that a significantly large proportion of Asia’s human capital is residing in and contributing to western countries’ development, another critical agenda will be how to attract them to work in Asia.

Ms Mahani pointed out that there has been rising incomes in Asia accompanied by expansion of the middle class and rising consumerism. More importantly, there has been changing consumer taste in line with global trends. Asia therefore has large and growing markets not only for Asian countries but for other countries outside the region as well. Nonetheless, she noted growing intra-regional trade. If this trends continue into the future, then Asia will be more dependent on regional growth and less on those of the US and Europe.

Turning to the issue on aging, Ms Mahani said that there are already aging societies such as Japan, Singapore, and the People’s Republic of China (PRC), and other countries in the region may face a rapidly shrinking population. There will then be a shortage of workers, which has serious implications on growth and public finance. Issues on adequacy of pension funds and meeting increasing demand for health workers for caring for the aged will become more pressing. As regards migration, she noted that North East Asian countries and economically advanced economies in the region have received few migrants, but aging population and high cost of labor are now putting pressure on them to relax their immigration policies. At the same time, many Asian countries are net exporters of labor to countries within and outside the East Asian region. For example, the Philippines exports relatively more highly-skilled workers especially to countries outside the East Asian region while Indonesia sends low-skilled labor to the region. Viet Nam also exports low-skilled labor, albeit to a lesser extent. Repatriation of income from overseas workers has increasingly become a major source of foreign income for labor-sending countries. This situation may not be sustainable, and thus countries with rapidly growing population need to create enough jobs to meet the demand from large young population.

Ms Mahani argued that the emergence of new economic powers in Asia can be based on population size. Viet Nam, Thailand and the Philippines are countries with fast growing population. Aside from providing large markets for products and services, they can attract investment, and therefore can potentially be centers for production. The PRC has already emerged as an economic powerhouse but it will be facing an aging population problem in the near term. Japan can continue to be a leading economy if it enhances human capital and per capita growth rates.

In conclusion, Ms Mahani pointed out that demographics will emerge as a key factor that determines economic growth, prosperity and power in Asian countries. However, demographic characteristics can be a strength or a burden to a country and therefore, managing and maximizing demographic factors is an essential strategy.