Myanmar's Demographic Conundrum

There are many reasons why Myanmar should in principle be able to grow very fast for two decades if it can capitalize on change and catch up with neighbors such as Thailand and China.

But amid all the potential, a recent short Multi-Dimensional Review report by the Organization for Economic Cooperation and Development (OECD) has noted one possible longer term negative that has otherwise escaped attention: Myanmar's demographics.

The report warns that the nation could get old before it gets prosperous - a warning similar to that often made about China. On the face of things, the warning may seem misplaced, at least if one compares Myanmar with most of its neighbors. That means not just China, which boasts some of the world's worst demographics both in terms of fertility rate and sex imbalance, but also by comparison with Thailand and Vietnam.

Thus for instance the median age of people in Myanmar is, according to UN Population projections (Medium forecast 2010) is expected to be just 29.8 years in 2015, rising to 33.5 in 2025 and 36.8 by 2035. By contrast Thailand's median age is already close to 36 and is forecast to reach 42.8 in 2025 and 46.8 by 2035. Vietnam's situation is less severe but the median age is forecast to hit 40.9 by 2035. Indonesia's aging process is much slower and it is forecast to be only 34.0 by 2035 - but this may be an underestimate as the fertility rate has already fallen faster than projected in 2010, being only 2.25 in 2012 compared with an earlier forecast of 2.35.

Myanmar's fertility rate has fallen fast and at 1.95 is now below long-term replacement level. But again it is better than Vietnam at 1.75 and far ahead of Thailand's 1.40.

The problem for Myanmar is not that its demographic outlook is worse than most Asean neighbors and China but that its economy has so much catching up to do. Assuming that it will take two decades to catch up with Thailand and one with Vietnam, its population will already be quite mature with a diminishing number of new entrants into the workforce each year. The largest population cohort is now in the 20-24 age group, with each successive one being smaller.

Of course demographic trends can reverse for reasons which are unclear. Possibly reform in Myanmar will raise optimism about the future and hence willingness to have more children. On the other hand, rising incomes and urbanization - currently very low - and access to electricity (only 28% of households have power) could have the opposite effect.

Another unknown is whether reform and better job prospects will induce a significant number of those who have left for work in Thailand - variously estimated at three to five million - to return home. Over a decade, even a slow drift back would have significant impact on the economic potential of both countries - and force Thailand to raise its own productivity goals and rely less on cheap imported labour.

The OECD makes the demographic point to show why speedy development now is essential now, while the workforce and young and growing. The report is otherwise mostly optimistic about Myanmar's prospects suggesting that the economy can grow at an annual average of 6.3 percent even without major structural reforms. Presumably, with such reforms a sustained 8 percent could be possible. It notes the very favorable resource endowment of plentiful land, the potential for huge increases in agricultural productivity, oil and gas wealth, large and varied mineral deposits and large water resources.

Myanmar ranks 14th in the world in terms of water availability - for hydro power, agriculture and fisheries. It also still has huge unexploited forests, which cover 47 percent of the land area, and immense tourism potential, including the many islands of the Myeik archipelago.

However, these natural resources need good management and here the OECD is clearly concerned about the prospects for good governance and the rule of law, as well as peace in the minority regions. It points to the need for devolution of power and some form of federalism but acknowledges that a balance between local and central power is hard to achieve.

For now there are huge regional variations in incomes and conditions, with border areas mostly more prosperous thanks to interaction with neighbors. Landlessness is also a problem in some areas including the important Ayeyarwady Division rice growing heartland.

Without better governance degradation of forest and other resources will be a major issue. More immediately badly needed infrastructure improvements are bedeviled by uncertain divisions of responsibility between ministries.

On the plus side the report notes the generally high standard of literacy and numeracy and the favorable position of women but also points to the weakness of vocational and secondary education. It claims that labour productivity is higher than in Vietnam - though the lack of manufacturing and low level of urbanization make this a debateable claim.

The potential for manufacturing however is huge given labour costs currently one sixth of China and Thailand and also below Vietnam. However, there is a lack of small and medium enterprises which could provide a support base for manufacturing investment.