Developing countries’ share in global investment to triple by 2030: World Bank

 

 

Developing countries’ share in global investment to triple by 2030: World Bank

(India and China will be developing world’s largest investors, together accounting for 38% of the global gross investment in 2030 and will account for almost half of all global manufacturing investment.)

According to a World Bank report, seventeen years from now, half the global stock of capital, totaling US$158 trillion will reside in the developing world, compared to less than one-third today, with countries in East Asia and Latin America accounting for the largest shares of this stock. By 2030, for every dollar invested in the world, 60 cents will flow into developing countries, a dramatic change from 20 cents to the dollar in 2000. China will make up 30% of all investment activity, while the United Stateswill have 11% and India 7%.

The report forecasts that developing countries’ share in global investment will triple by 2030 to three-fifths, from one-fifth in 2000. With world population set to rise from 7 billion in 2010 to 8.5 billion 2030 and rapid aging in the advanced countries, demographic changes will profoundly influence these structural shifts. Productivity catch-up, increasing integration into global markets, sound macroeconomic policies, and improved education and health are helping speed growth and creating massive investment opportunities, which, in turn, are spurring a shift in global economic weight to developing countries. A further boost is being provided by the youth bulge. With developing countries on course to add more than 1.4 billion people to their combined population between now and 2030, the full benefit of the demographic dividend has yet to be reaped, particularly in the relatively younger regions of Sub-Saharan Africa and South Asia. Combined with this, strong saving rates in developing countries are expected to peak at 34% of national income in 2014 and will average 32% annually until 2030. In aggregate terms, the developing world will account for 62-64% of global saving of US$25-27 trillion by 2030, up from 45% in 2010.

Regional Highlights

South Asia will remain one of the highest saving and highest investing regions until 2030. However, with the scope for rapid economic growth and financial development, results for saving, investment, and capital flows will vary significantly. South Asiais a young region, and by about 2035 is likely to have the highest ratio of working- to nonworking-age people of any region in the world. The general shift in investment away from agriculture towards manufacturing and service sectors is likely to be especially pronounced in South Asia, with the region’s share of total investment in manufacturing expected to nearly double, and investment in the service sector to increase by more than 8% points, to over two-thirds of total investment.

East Asia and the Pacific is experiencing a big demographic dividend and the lowest dependency ratio in the world. However, this dividend will end after reaching its peak in 2015. Labor force growth will slow, and by 2040 the region may have one of the highest dependency ratios of all developing regions.

Eastern Europe and Central Asia is the furthest along in its demographic transition, and will be the only developing region to reach zero population growth by 2030. Aging is expected to moderate economic growth in the region, and also has the potential to bring down the saving rate more than any developing region, apart from East Asia. The region’s saving rate may decline more than its investment rate, in which case countries in the region will have to finance investment by attracting more capital flows.

Latin America and the Caribbean may become the lowest-saving region by 2030. Although demographics will play a positive role, as dependency ratios are projected to fall through 2025, financial market development and a moderation in economic growth will play a counterbalancing role. Similarly, the rising and then falling impact of demography on labor force growth means that the investment rate is expected to rise in the short run, and then gradually fall.

The Middle East and North Africa is in a relatively early phase of its demographic transition, characterized by a still fast growing population and labor force, but also a rising share of elderly. The region has the lowest use of formal financial institutions for saving by low-income households, and scope for financial markets to play a significantly greater role in household saving.

Sub-Saharan Africa is currently the youngest of all regions, with the highest dependency ratio. This ratio will steadily decrease by 2030 and beyond, bringing a long lasting demographic dividend. The region will have the greatest infrastructure investment needs over the next two decades (relative to GDP). At the same time, there will likely be a shift in infrastructure investment financing toward greater participation by the private sector, and substantial increases in private capital inflows, particularly from other developing regions

Warm regards,

Dr. S P Sharma

Chief Economist