Nepal, Indonesia, Bangladesh, Sri Lanka: When demographic dividend isn’t delivered

If politics is about optics, the leaders of these countries have not quite helped themselves. Earlier this week, Indonesia’s President, Prabowo Subianto, fired the globally respected Sri Mulyani Indrawati as the finance minister amid some of the worst public unrest in years following the revelation that Parliamentarians were set to receive a monthly housing allowance equivalent to $3,000. The allowance, scrapped on September 4 after days of violent protests, was almost 10 times the country’s highest monthly minimum wage of $337 in the capital city of Jakarta. Indrawati, a former Managing Director at the World Bank and Executive Director at the International Monetary Fund, had burnished Indonesia’s image with her fiscal restraint during her 13 years as the finance minister under three Presidents. However, she was at odds with Subianto and his populist policies.

The high levels of corruption and lack of political continuity have meant economic growth has not been inclusive, with the youth suffering in particular. And these countries are all rather young. According to the United Nations’ World Population Prospects 2024 report, the median age of Nepal last year was 25 years, only slightly lower than Bangladesh’s 25.7. For Indonesia it was 30.1, while Sri Lanka’s was 33.1 years.

Whither demographic dividend?

Countries with a young population bank on the youth to propel economic growth higher. This gain, called the demographic dividend, comes from changes in the age structure of a country’s population which lead to the proportion of the working-age population becoming increasingly larger than those who don’t work – young children and the retired.

As young adults finish their education, they expect to enter the labour force and boost the talent available to domestic firms. An increase in supply of talent can also ensure wages don’t rise much, helping raise profits, which can help finance future investments. This would then support the creation of more jobs. This, seemingly, has not happened in many of Asia’s developing economies.

“…although there has been significant and largely sustainable growth, that has not been accompanied by millions of new jobs,” the Asian Development Bank said in June. “In urban Asia, auto electronics and textile manufacturing used to be the entry point into the labour market for millions of young people. But with much of industrial production now mechanised, we live in an era of far fewer jobs in those traditional sectors. The average car factory today employs only around 15 per cent of the workforce it needed 25 years ago. Likewise, repetitive low-skilled assembly work everywhere has been largely ceded to increased automation.”

Last year, the World Bank had warned South Asia was on a path “that risks squandering its demographic dividend of growth”. According to the Bank, from 2000 to 2023, South Asia created 10 million jobs a year on average – just over half of what was required.

High youth unemployment

In Indonesia, the national average unemployment rate in 2024 was 4.91 per cent. But for those in the 20-24 age bracket, the unemployment rate was more than three times as high: 15.34 per cent. In Bangladesh, the national unemployment rate in 2023 was 3.35 per cent. However, at 8.24 per cent, the highest unemployment rate was for those in the 15-24 years age bracket.

In Nepal, the country’s statistics office said in July that the employment challenge was “significant”.

“The high dependence on foreign employment and remittances, coupled with limited industrial development and job creation in the formal sector, presents ongoing challenges for policymakers,” the National Statistics Office said in a report titled Demographic Dividend in Nepal, adding that the labour market sector had not shown any improvement, with unemployment increasing to 12.6 per cent in 2022-23 from 11.4 percent in 2017-18.

With underemployment even more prevalent, especially among those aged 15-24, young Nepalis were looking abroad for jobs, resulting in remittances accounting for nearly a quarter of the country’s GDP. “These trends highlight the urgent need for domestic job creation in emerging sectors and industries to retain talent and support the economy sustainably… without sufficient job creation, Nepal risks missing out on the economic benefits of its demographic dividend.”