Finding the sweet spot: Harnessing the demographic dividend EDITOR
Aspecial study published by Stratbase ADR Institute, entitled “ASEAN’s Golden Opportunity: The Future of Southeast Asia,” written together with my colleague Angelica Mangahas, explores how the regional bloc’s political and economic narratives have diverged.
On one hand, the region has made great strides in liberalizing the flow of goods and services since its establishment, albeit, at a sluggish pace. On the other hand, it has failed to convert its economic capital into geopolitical weight. As ASEAN celebrates its 50th year, the demands of our time require that member states take a more unified approach in addressing external and internal challenges.
In many ways, ASEAN’s strength is centered on economics. The region’s economy has expanded rapidly over the course of a decade. In 2000, the region only contributed under two percent of global GDP; in 2015, it accounted for six percent. Taken as a whole, ASEAN is now the sixth largest economy in the world. While its economic fundamentals are in place, there is an urgent need to exploit these fundamentals to its maximum. Most ASEAN economies, however, have struggled to attain high-income status. The Philippines, for instance, has stagnated in the middle- income category for 42 years, Thailand for 39, and Indonesia for 31. Alongside physical investments, one way for the government to beat the middle-income trap is for them to harness their demographic dividends. With demography playing a crucial role in driving ASEAN economies, there is an increased urgency to invest in human capital, particularly, in mobilizing its labor force.
ASEAN’S DEMOGRAPHICS
ASEAN currently hosts over 632 million inhabitants, tripling its population since the 1970s. Although the region’s populations continue to grow, the pace has halved during this period — the annual population growth rate is now at 1.2%. Fertility rates have also dropped: for Brunei, Myan-
ASEAN has so far failed to convert its economic capital into geopolitical weight.
mar, Singapore, Thailand, and Vietnam, it is already under 2.1, the replacement rate necessary to maintain a stable population. In contrast, the Philippines’ fertility rate of 3 is among the highest in the region.
While varied, ASEAN’s demographic structure is enviable: with a median age of 28.9, its population is young and its consumer base is expanding. The Philippines, in particular, has among the youngest population in the region, with roughly 60% of Filipinos below 30 years, and less than 5% of its population over 60. On the other hand, Brunei, Singapore, and Thailand’s dependency ratios are increasing due to lower fertility rates and aging populations with higher life expectancies. By 2035, Thailand and Singapore will be threatened by labor shortages, as working-age populations are projected to decline. In the next few decades, this pattern will spread throughout ASEAN, as rising dependency ratios will erode the bloc’s demographic advantage. Thus, member states need to make the most of this demographic sweet spot now and ensure that the emerging labor force becomes productive.
MOBILIZING THE LABOR FORCE
The unemployment rate averages at three percent in the region, well below the global benchmark of six percent. Though declining, the Philippines has the highest unemployment rate at 6.1%, with Indonesia coming in second at 5.6%. However, youth unemployment throughout the region is a more pervasive issue. After all, ASEAN’s growth is premised on its ability to harness and enhance the productivity of its young work force. In 2015, an average of 8.5% of the youth were unemployed.
Another issue that ASEAN has to contend with is the flow of workers within the region. The disparity among ASEAN Member States’ real wages have encouraged labor migration across countries. For instance, the average wages in Laos and Cambodia are only around 3% of that in Singapore. Unsurprisingly, migration patterns show net inflows into wealthier member states such as Malaysia, Thailand, and Singapore. For Thailand and Singapore, in-migration should help to address its impending labor shortage. On the opposite end, the migration from Indonesia and the Philippines could assist in containing domestic unemployment.
The majority of migrant workers, however, are employed in low- and medium-skilled professions. Although most migrants fall under these categories, ASEAN Member States have yet to facilitate the movement of these workers within the economic community. For more skilled workers, ASEAN has completed eight Mutual Recognition Arrangements ( MRAs), granting reciprocal recognition of specific licenses. Moving forward, the region has to work closer together to facilitate a freer movement of labor within its borders. Negotiating MRAs to cover a greater number of professions would be a good start. However, this requires cross-ASEAN recognition of educations and skills qualifications to remedy skills mismatches in the region.
Ultimately, a strong economic position can be the region’s leverage in an increasingly erratic global landscape. While member states each have their own domestic challenges, they must take on a unified front to move closer together towards an ASEAN dream.