Capturing the Demographic Bonus in Ethiopia Luc Christiaensen and John May HNP BBL Presentation at the World Bank - November 14, 2007

Central Theses Accelerating the demographic transition in poor countries yields faster income growth and poverty reduction. To do so, there are important pay-offs at the margin from complementing gender equitable development with demographic actions such as family planning.

Population and Development – The Demographic Bonus

Demographic transition changes the age structure

Rapid population growth slows economic growth Rapid population growth (declining mortality) results in : higher dependency ratios/lower savings increasing demand for public investment in social services (health, education) at the expense of investment in productive goods and services (infrastructure) changing land/labor and capital/labor ratios affecting productivity  Slower economic growth Malthusian and Boserupian responses (both in Ethiopia)

Followed by fertility decline, it spurs economic growth When rapid population growth is followed by a decline in fertility: dependency ratios decline, the share of working age population increases, and so do savings and private investment Reduced public spending on social services frees up resources for public investment in productive goods and services (infrastructure) This induces more rapid economic growth, the “demographic bonus.”

The demographic bonus can be large is NOT automatic is larger, the faster the fertility transition. How much is the gain in Ethiopia and how to accelerate the fertility transition?

Population and Development in Ethiopia Today

Ethiopia - a demographic giant … Size: 78 million people, 2nd largest population in SSA, after Nigeria Speed: growing at 2.5 % resulting in 2 million people added per year; Structure: high dependency ratios (83+3)/100 youth bulge (50% between 15-29 yrs old) Space: young population largely concentrated in the rural Highlands (15% urban) Increasing land pressure and environmental degradation landholdings per rural person more than halved since late 1960s Inorganic fertilizer added equals amount removed Resettlement Chapter 1

… at the brink of its fertility transition Annual population growth has declined from 3% in 1990 to 2.5% in 2005 U5MR (123/1,000 in 2005) continues to decrease and fertility started to decline as well (5.7 children per woman in 2005) Marriage at early age is slowly declining, from 65% of the married women being married by age 18 in 2000 to 61.8% in 2005 The contraceptive prevalence rate increased from 8.1% in 2000 to 14.7% in 2005, but at 34% unmet demand remains high

Drivers of Mortality Changes IMR and CMR are the main drivers of changes in CDR Further reduction in child mortality will substantially reduce the CDR and thus foster population growth. Female education, clean water access, being Muslim have major effects on CMR The maternal mortality ratio is very high (673/100,000 live births in 2005), though the anticipated decline to reach the MDGs is unlikely to substantially affect the CDR or population growth HIV/AIDS is unlikely to substantially affect CDR when maintained at the current levels

Drivers of Fertility Changes Female education: key socio-economic variable Income effect: doubling household income associated with 1-1.5 fewer children on average FP Knowledge among women in communities Empowerment: Women in communities where women earn cash income have fewer children Access to family planning services Literature: lifetime exposure to FP reduces TFR by 0.5 to 1.5 child per women Similar order of magnitudes found in Ethiopia

High demand for contraceptives generates an opportunity to accelerate the fertility decline

Population and Development in Ethiopia Tomorrow

Population Projections Scenarios Reaching PASDEP with high FP low fertility: TFR from 5.9 to 2.94 low mortality: U5MR from 166 in 2000 to 50 in 2030 Corresponds to UN Medium Variant Assumes high family planning - CPR grows at 1.32% per year Reaching PASDEP high fertility: TFR from 5.9 to 3.65 in 2030 high mortality: U5MR from 166 to 76 in 2030 Corresponds to UN high variant Assumes lower FP expansion - CPR grows at 0.9%/year Both scenarios have same assumptions regarding mortality and fertility effects of HIV/AIDS

Simulated evolution of TFR   2000 2015 2030 Scenario 1 % women in union 63.59 59.16 53.09 Annual CPR increase 0.9%point/year 8.1 20.1 32.1 Simulated TFR 5.9 4.61 3.63 Scenario 2 Annual CPR increase 1.32%/year 27.9 47.7 4.25 2.87

In 2030, Ethiopia’s Population could be 135m (high) or 124m (low scenario)

Dependency Ratio Reaching .7 or .6

Macro Effects of Population Growth GDP growth depends on factor accumulation (labor, capital, land) and TFP growth. Lower population growth (following more spending on family planning) may influence growth and poverty reduction through: Composition of public expenditures (skills/capital) Labor market Total factor productivity MAMS- Maquette for MDG Simulations a dynamic economy-wide model of Ethiopia run from 2005-2030 earlier used to analyze scenarios to reach the MDGs and to develop poverty reduction strategies.

The powers of MAMS Public spending Labor market Ethiopia specific production and cost functions of social services Family planning explicitly accounted for Other public infrastructure (roads and energy) and other government Government and country operate under budget constraints, closed either through government borrowing or direct taxation trade-offs are explicit Labor market Three types of labor (unskilled, semi-skilled, skilled) Labor markets clear through wage adaptation for each labor category; unemployment is implicit—only a share of those entering the labor market are employed, this ratio is fixed over time TFP growth is assumed independent of population growth Population growth enters exogenously, but consistent with observed behavior Tool for comparing welfare effects of different population growth scenarios and thus cost-benefit analysis of more rapid FP expansion

Simulation assumptions Scenarios simulated with MAMS for the period 2005-2030: (1) Higher pop growth with low spending on FP; government budget balanced through changes in direct taxes or domestic govt borrowing (2) Lower pop growth with higher FP spending (52 million US$ in 2030) Population projections: Exogenous paths for total population and cohorts entering the first year of primary school and the labor force; High population growth scenario has a higher dependency ratio and a smaller population share in working age. The different scenarios are identical in terms of: Educational quality (resources per student) Health indicators Access to safe water and sanitation (MDGs 7a and 7b) Government per-capita spending in other areas. Aid and other inflows from the rest of the world.

MAMS simulation results % growth per year, 2005-2030 Higher pop growth, direct taxation, low fp Lower pop growth, high fp Gap low-high School enrollment 4.4 3.6 -0.8 Labor force 0.93 0.75 -0.18 Government consumption 5.89 5.43 -0.46 Government investment 5.82 5.2 -0.62 GDP at factor cost 5.1 5 -0.1 Private investment 4.59 4.85 0.26 Private capital stock 3.8 0.2 Private consumption 5.05 5.07 0.02 Priv. consumpt. per cap 2.8 3.1 0.3

With more rapid family expansion, there are 1 With more rapid family expansion, there are 1.5 to 3m less poor people in 2030

Capturing the demographic bonus – policy implications

Development is the Best Contraceptive, but Contraceptives are Good for Development Fostering female education and empowerment is quantitatively the most important entry point  about 75% of the simulated decline in TFR induced by gender equitable development Especially more rapid family planning expansion provides substantial complementary benefits at low cost  0.5-1.5 reduction in TFR following lifelong FP exposure But also gains from promoting a more enabling population policy environment (political commitment, sustained government financing, proper institutional arrangements, and better M&E)

Demand for contraceptives is high Unmet needs for FP are still great: 34% of married women have expressed an interest in 2005 The growing use of FP has barely kept up with the increasing demand (unmet demand in 2000 estimated at 36%)  Improving access to contraceptives, while continuing IEC and BCC services

Expanding coverage of family planning services to remote rural areas The MOH intends to deploy 30,000 Health Extension Workers (HEWs) Engaging the private sector and NGOs (abolishment of taxation on contraceptives) Linking HIV/AIDS and FP/RH services CBRH agents (compensation)

Community-based Reproductive Health Agents (CBRHAs) Play a Key Role

Improving availability of contraceptives at existing distribution points Implementing a new supply-chain system (coordination/consultation of regions, provision of basic logistics in local warehouses, logistics typically not or poorly funded (govt or donors) Initiating long-term planning for financing contraceptives, at all levels

Improving quality of family planning Expand the range of contraceptives available, including long term Recruitment, training and deployment of qualified health personnel

Thank you !