Limitations of the youth dividend

Chris Chenga Open Economy
Demographic dividend, as defined by the United Nation’s Population Fund, means the economic growth potential that can result from shifts in a population’s age structure. It is the expected boost in economic productivity that occurs when there are a growing number of people entering the workforce relative to the number of dependants in an economy.

The theory of a demographic dividend has been received with notable enthusiasm by Zimbabwean youth, who have presented a strong case for committed resources and enabling structural support as they constitute 77 percent of our national population. People between 15 and 35-years-old represent 56 percent of Zimbabwe’s economically-active population.

By these numbers alone, indeed the youth are a significant demographic of the economy. They should be perceived as such.

However, the theory of a demographic dividend is susceptible to a misleading interpretation that concentrated efforts on a particular demographic, in this instance the youth, can result in economic desirables without pre-existent conditions at the “experienced” and “aging” demographics of our population.

In fact, Government should be advised that the difficulties it is facing today in committing resources and offering enabling structural support to the youth are largely due to flawed circumstances in older demographics.

Immediately, one can point to the unfortunate circumstance of lost savings that occurred at the end of hyperinflation and eventual adoption of the multi-currency system in 2009.

This distorted the retiree demographic as many who either had already passed or were approaching standard retirement age are still active today; forced by circumstance.

Thus, two scenarios which directly affect youth are at play here.

First, many who theoretically fit as retirees should now be re-classified as the “aging” demographic.

This is an economically-active demographic and as such, it is still in contestation with youth for Government’s continued commitment of resources and enabling structural support.

Secondly, members of the aging demographic who simply lose out to earning opportunities in this slowing economy have little formalised savings to live by.

As such, in the benevolent family case, they are direct dependants who take up a notable share of the already meagre youth and experienced demographic incomes.

This is an unsustainable consumption pattern for an economy.

Many in the youth and experienced demographic are being forced to spend a chunk of their income on recurrent expenses such as food, renting, and especially exorbitant healthcare costs for their aging dependants.

This is a structural impediment to desirable spending patterns which balance out short term consumption and long term investment.

The recommended structural circumstance would be to have a retired demographic that has ample savings to provide for its own subsistence.

This would obviously provide relief to youth and experienced demographic incomes, thus enabling these demographics to start accumulating their own assets such as housing and monetary investments.

More importantly, it would ease Government commitment as an economically inactive, yet well-invested retired demographic would derive significant subsistence off the value of its own already earned assets e.g. pension contributions, lifetime savings, and accumulated immovable assets. Unfortunately, this demographic is likely to continue draining the fiscus as it is drawing substantial governmental support without turning that Government spending into productive use.

This present state of the retiree and aging demographics provides effective introduction into explaining why many youth empowerment initiatives are struggling to take off in Zimbabwe.

As a nation hoping to conceive a broad industrialist base within the youth demographic, it is a pre-condition to have credit in the economy.

Industrialists require an economy with risk appetite to finance their ventures. That means the economy should have assets that secure the level of credit needed to back these ventures. The more assets, physical or monetary, owned in an economy, the more credit there is in an economy. In a conventional scenario, these assets are leveraged on the retired and experienced demographic.

Ideally, these demographics would have accumulated enough assets over their working lives to either spearhead direct investment or offer risk security for youth enterprise initiatives. This structural shortfall between demographics explains why, for instance, the Reserve Bank of Zimbabwe can make a directive for the banking sector to lend 15 percent of its annual loan book to youth ventures, but it cannot present an economic case to enforce such lending as there is a securitisation gap.

Beyond targeted lending, there is an infrastructural deficit in Zimbabwe which is constraining empowerment initiatives.

We are deprived of that infrastructure due to lacking long term monetary assets usually found in pension and insurance funds.

This is Zimbabwe’s greatest hurdle in conceiving this desired broad youth industrialist base.

Consequently, efforts towards mass employment are stifled as we struggle to birth new industrialists.

It is already evident in our economy as many skilled and well-trained professionals cannot be assimilated into the formal economic activity.

Without the aforementioned asset composition, which is conventionally offered by the retired and experienced demographics, there is a formidable limitation to the youth dividend.

Indeed, it is inappropriate to merely articulate the structural limitations of the youth dividend without proffering solutions.

The long term solution that is necessary to create an indigenous economy driven by youth industrialists is actually FDI.

It is testimony to our polarised public discourse that we have groomed perceptions that having an indigenous economy is mutually exclusive to having FDI.

In fact, the two are co-dependent.

The FDI simply has to be intentional and strategic.

What is needed is to identify credible empowerment initiatives which are constrained by the securitisation gap.

There are many potential industrialists working on sound ventures within our economy; however, they lack the necessary asset backing which is conventionally provided for by the retiree and experienced demographics.

These empowerment ventures can be financed by strategic FDI from friendly foreign investors; let alone Zimbabweans in the diaspora who the Ministry of Youth, Indigenisation and Economic Empowerment has already begun to pursue.

In many nations, both Eastern and Western, interest rates are lower than they have ever been in modern economic history!

For instance, in Japan, they are as low as minus 0,1 percent, which means the safest returns for Japanese investors is actually no return at all. Several other Asian and European countries have cut interest rates below 0 percent since 2014. Are our industrialists unable to offer a return to investors of 0,1 percent?

The truth of the matter is that Zimbabwe is trying to attract friendly FDI at a time when the competitive benchmark of returns is nil.

Indeed, most portfolio investors adventurous enough to invest abroad are happy not to dispute any controlling thresholds, as long as they are offered credible investment propositions, of which the onus to provide such assurance is on our indigenous industrialists.

It is my understanding that not only do we hope to create an economy representative of indigenous industrialists, but we would like to create an economy where indigenous industrialists are representative of globally relevant and competitive industry, too. The limitations of our youth dividend can simply be upended by introducing our young industrialists to the world.