COMMENT: I have seen the future… and it’s in Central Asia

COMMENT: I have seen the future… and it’s in Central Asia
By Mark Adomanis in Philadelphia April 4, 2016

Demographics might not be “destiny,” but they have an awful lot to say about the matter. Japan’s experience trying (and failing) to manage the increasingly heavy burden of an aging population has driven home the extent to which economic growth becomes, if not impossible, then at the very least extremely difficult in a context of sustained demographic decline. Since 1992, Japan’s economy has had a compounded annual growth rate (CAGR) of just 0.69%. Over the past decade, as Japan’s workforce continued to shrink and its ranks of retirees grew ever larger, an already serious situation got even worse: from 2006-14 GDP growth averaged a mere 0.18%.

Despite the region’s much lower level of per-capita economic development, Japan-style demographics are, unfortunately, increasingly the rule rather than the exception throughout the post-communist space. Over the past quarter century, Japan's fertility rate averaged a mere 1.39. The equivalent figures across Eastern Europe are as follows: Poland (1.48), Czech Republic (1.38), Slovakia (1.45), Romania (1.42), and Russia (1.42). It is true that Russia has rebounded more rapidly in recent years than most other countries in the area, but even there the future holds some very substantial challenges.

There is one part of the post-communist world, however, that is a glaring exception to the gloomy narrative of demographic decline that I’ve laid out above: Central Asia. Indeed, the five states of Central Asia have an entirely different set of issues on their hands: not population decline, pension burdens or worker shortages, but a "youth bulge" that, as in the Middle East, poses a serious risk of political instability. Over the past 25 years, indeed throughout the post-war period, average fertility across Central Asia has been substantially higher than in Eastern Europe. Since 1991 the region’s fertility rates have been as follows: Kazakhstan (2.3), Kyrgyzstan (2.9), Tajikistan (4), Turkmenistan (3) and Uzbekistan (2.8). These are all substantially above the replacement rate, meaning that populations have experienced rapid natural growth.

Looking forward, the region is poised for a long-term demographic boom. The UN’s “medium scenario”, which is supposed to be the organisation’s best guess for what will actually happen has Central Asia’s population peaking in the late 2070s at a little over 91mn, before very gradually starting to nudge down. Even more striking is the rapid closing of the population gap between Central Asia and Russia: from a current level of about 76mn, this is projected to shrink to as little as little as 30mn by the 2060s.

It’s worth noting, however, that this forecast, like all economic and demographic forecasts, is highly dependent on its initial assumptions. In this case, the “medium” scenario contains a powerful bias towards mean reversion. That is to say that, when assembling this forecast, the UN assumed that countries with high fertility rates will gradually move down, while countries with low fertility rates will gradually move up. In practical terms, this means that the “medium” scenario has Russian fertility steadily but slowly increasing over the 21st century, while Aentral Asian fertility just as steadily decreases. 

For the longest time, demographers operated on the assumption of a “universal point of convergence” – a single fertility rate to which all countries would gradually move.

With a little bit of historical hindsight, namely the more than 20-year swoon in fertility across a broad swathe of Central and Eastern Europe that has shown no signs of abating, it seems clear that assuming convergence among a broad range of diverse countries is, at the absolute least, questionable.

A far more thought-provoking forecast is the “constant fertility” one, which, as the name suggests, projects the maintenance of current fertility rates into the future. Here there isn’t just a narrowing of the population gap between Central Asia and Russia, but an outright reversal sometime in the mid 2060s. More generally, there is no universal law that compels the birth rates of various countries to converge, and, more than any other that I’ve come across recently, this chart below helps to drive home how truly radical a change in circumstances the maintenance of current trends would cause.

Does any of the above mean that Central Asia is necessarily going to become prosperous and well-run? In a word, no. Demographic surges of the sort that Central Asia seems set to experience don’t guarantee anything. There are plausible arguments that the kind of rapid growth predicated by the “constant fertility” scenario would actually cause some rather serious social and economic instability.

But what the demographic numbers do indicate, and indicate quite clearly, is that in the not-too-distant future we are going to have to become accustomed to treating Central Asia not as a pliant “client” of the West, Russia or China, but as a region possessed of significant military, economic, and demographic heft of its own right. Russia’s ability to manipulate these states has, I think, been slightly exaggerated, but when they are in population terms roughly the same size, its ability to do so will be much more constrained.

The larger point is that quite a few countries that we now assume are powerful are unlikely to remain so, while a number of others that we typically think of as also-rans are likely to become much more influential. This won’t be an overnight transformation, but that doesn’t make it any less real.

Mark Adomanis is a Wharton MBA by day, Russia analyst by night. Follow him on @MarkAdomanis