The Baby Bust

"The point of our demographics is that we're not have as many children and the population is stagnant, if not declining.  So without immigration, we're not going to have the population." - Susan Oliver

"Social security is a plan that actually was designed in a much different time, in a different era, and with a different set of American demographics in mind." - Ginny B. Waite

It is relatively safe to say that the world is aging rapidly.  In 1970 the average woman on the planet gave birth to 4.7 children in her lifetime but by 2011 the trend had stalled and that number has fallen to 2.5.  Taking a deeper look it can be seen that not only is the world's population growth barely moving, but there are rapid shifts in demographic growth and this will have significant impact on investment allocations and opportunities.

Looking at the demographics of the developed nations of the world they capture roughly 1 billion people of a total estimated global population of 7 billion.  Furthermore the developing and under developed nations will provide 97 percent of global population growth in the coming years.  As an example, Spain with a population of roughly 46 million is projected to have a total population of 48 million by 2050.  In contrast Tanzania with an equivalent current population is expected to have a population of 138 million by that time.  The developed world has a population base that is barely growing while the developing world is growing gangbusters.

So as a global company like Wal-Mart your opportunity is outside of the United States.  There are billions of people out there that would love to have a Wal-Mart store in their village providing them with all the wonders of the world.  The problem is that a lot of these people have no way of paying for their purchases as they earn less than $2,000 a year however things are changing fast.  The graph below extracts data from the International Monetary Fund database and shows the Purchasing Power Parity of the global consumer.  Purchasing Power Parity is an economic theory used to level the playing field by adjusting a country’s exchange rate to reflect an equivalent dollar of purchasing power.  In other words a Russian that earns say 50,000 rubles a month may be able to live at the same economic level as an America who earns $5,000 a month even though the exchange rate would only give the Russian $1,700.  In this example they would be said to have Purchasing Power Parity.

Based on this theory the graph is very telling.  Global Purchasing Power Parity is accelerating meaning that wealth around the world is expanding.  More important is that the vast majority of this growth is being powered by the 6 billion people that live in developing and under developed nations.  As this trend continues more and more of the globes trade will move to these countries and away from the developed world transferring economic and commodity pricing power out of the hands of the incumbents and into the hands of the growth nations.  This demographic trend will shape the next hundred years and there is nothing that will turn the hands of this clock back. Multi-national companies know this and are expanding capacity, infrastructure and operations to the countries that are heading up the charge. These include Brazil, India, Russia and China, the so called BRIC nations. This is where the growth will come from, resources are required and opportunities abound.

Currently these countries make up just a fraction of the global trade.  In fact between them the BRIC countries make up only $9 trillion of an estimated $70 trillion total global market however it is estimated that by 2050 these four countries will produce and consume more than $130 trillion of goods and services making them far larger than any other sector in the world.  They will dwarf the United States which is expected to grow to $38 trillion by that time.  So demographics are on the side of the BRIC nations but the developed world will benefit as they are piling money and resources into these markets in an effort to win over consumers.  It is going to be a tough fight and I expect that by 2050 many new companies will emerge to take over from the current stalwarts.  For example less than a decade ago no-one in the United States knew of Hyundai, HTC or Foxconn and now they are stealing market share of the incumbents.

This is an incredibly important trend as it will have a huge impact on global markets.  Companies that are will positioned to benefit from this trend will skyrocket while others will be left in the dust.  In looking for investment opportunities always keep this slow moving tidal wave in the back of your mind as it will wash away those companies not on high ground.