The GCC had one of the highest rates of population growth in the world over the last decade, around four times faster than emerging markets and the US, seven times faster than in China and 10 times higher than in the euro zone. This was mainly due to the large inflow of expatriates that now account for a large share of the population: from 33 per cent in Saudi Arabia to more than 85 per cent in the UAE and Qatar.
According to Oxford Economics, the GCC will retain its position in the next 10 years, followed closely by emerging Asia excluding China. The GCC’s population is expected to grow at an average rate of 1.8 per cent per year, twice as fast as the average emerging market. In stark contrast, the populations of the eurozone and Japan are estimated to respectively stagnate and contract.
In the next decade, population growth is expected to decelerate globally. Thanks to technology, which helped reduce the death rate in developed economies, and globalization, which allowed emerging markets to emulate the West, the demographic transition from high death and high birth rates to low death and low birth rates has taken place across the world. The slowdown is more acute in developed markets, due to the particularly low fertility rate, but emerging economies are also facing a similar trend.
Nevertheless, demographics remain supportive of economic growth in emerging markets, particularly in the Gulf and Asia where their population is expected to grow three times as fast than in advanced economies. The rapid rise in population forces governments to develop their country’s’ infrastructure endowment in order to facilitate the urbanization process and accommodate the consumption needs, boosting overall economic growth.
The population growth differential between developed and emerging markets is expected to remain significant in the next decade — falling only from 57 basis points in 2004-13 to 51 basis points in the next 10 years. Although the differential rate will gradually fall, the ongoing gap suggests emerging markets should continue to experience stronger economic growth rates in the upcoming decade.
The GCC’s population will surge by 30 per cent by 2020, according to estimates made by the Economist Intelligence Unit in 2012, while around half of the region’s population is under the age of 25 today. The labour force will keep growing, boosting the region’s potential growth rate.
In order to realise this potential, major growth-friendly policies will need to be pursued to provide jobs for the growing workforce and ensure long-term growth. Economic diversification plans such as strengthening the non-oil sector, reducing the share of public sector jobs and encouraging entrepreneurship will need to accelerate across the region.
Furthermore, the high population growth rate will exhaust the region’s scarce resources, primarily water. Investment in water efficiency and desalination capacity is critical.
The urgency to implement these policies is mounting as the rapid rise in population strains the economies in the GCC. Their absence, or slow implementation, may lead to higher unemployment and inflation, the ultimate ingredients for political instability. The latter factor will most likely motivate governments to act on time. Hopefully, they would implement more measures than the minimum required in order to seize the opportunities offered by favourable demographics and boost long-term economic growth.
By Camilla Accad
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