Will low birth rates impact the FDI site selection decision? Investment Monitor

Live births and fertility rates are falling in most parts of developed economies, with some emerging markets also starting to see early signs of the same trend.

Japan, for example, is well known for its aging population and recently released its latest census showing that 2021 saw the lowest number of births in the country for over a century.

Japan recorded 811,604 births and 1,439,809 deaths in 2021, meaning the population fell by 628,205, the biggest natural decline since data became available. Reuters reported. This drop in births marks a drop of 3.5% compared to the previous year.

According to the Japanese news agency Jiji Pressthe fertility rate, which tracks the average number of children a woman has over her lifetime, fell for the sixth consecutive year, to 1.3, the fourth lowest on record.

The birth rate problem in Asia

However, Japan is not the only Asian country to face this problem. According to StatistaTaiwan, South Korea, Singapore, Macao and Hong Kong were the countries with the lowest fertility rates in the region in 2021.

Even China, a country that had a one-child policy until 2016, reported a record number of births in 2021, prompting authorities to allow women to have more children and offer family subsidies.

The birth rate of 7.52 per 1,000 people was the lowest since 1949, when data began to be collected. China’s natural population growth rate was just 0.034% for 2021, the lowest since 1960, according to data.

Many European countries are in Statista’s top 20 above, and according to the latest UK census reportthe country will very soon face a similar problem.

Data shows that in 2020, the live birth rate in England and Wales fell by 3.8%, from 640,635 to 615,557.

“This downward trend continued into the first quarter of 2021, when there were 146,574 live births in England and Wales; down 3.9% from the same period in 2020 and down 18.6% since the last peak in 2012,” the report said.

Falling birth rates and the long-term decline in the proportion of young people in the population is bad news for companies looking to invest internationally, especially as the problem appears to be spreading across regions. , including many of the most popular regions. foreign direct investment (FDI) destinations.

However, it is not always a purely mathematical game, some sectors being more sensitive than others, while solutions are evoked to adapt to the situation.

A sector problem

Birth and fertility rates are an indication of a country’s future workforce and as such are carefully considered by companies when making their FDI site selection process. However, changing demographics do not affect operations in all sectors equally.

Industry experts agree that technology companies and the manufacturing sector tend to be more sensitive to new demographic trends that will affect not only the quantity, but also the quality of the workforce in the future.

“It’s not a black-and-white problem,” says Elias van Herwaarden, founder of site-selection company Locationperspectives. “When you look at large manufacturing FDI projects, demographics play a bigger role than for other projects, as companies look for a sustainable workforce five to ten years from now.”

However, van Herwaarden also points out that the Western Hemisphere in particular depends on service jobs for GDP growth, where quality matters more than numbers.

“In this space, it’s less about pure demographic trends and more about what governments and investment promotion agencies have done to nurture talent,” he says. “We have worked on site selection processes where evidence of long-standing and well-planned talent development programs was deemed more important than higher labor volumes in selecting a location.

Quality over quantity: the importance of talent

Talent has been a driver of rising FDI over the past two years, so it is perhaps unsurprising that it has come into question when discussing the impact of changing demographics on foreign investment.

“Demography certainly influences FDI, but it depends on the type of demographic,” says van Herwaarden. “Pure statistics are almost irrelevant. Our corporate clients want to look at the evolution of the talent pool when evaluating the quality and stability of the workforce. Is it erratic and accidental or is it systematic and consistent with policies?”

Larry Gigerich, executive managing director of site-selection boutique Ginovus, agrees that talent development and, in particular, education are essential to ensure a growing workforce.

“Over the past few years, we’ve received more and more questions about workforce growth in site selection processes,” he says. “And it’s not just a question of quantity, it’s also a question of quality. Diversity is increasingly seen as an important part of a quality workforce and this is where demographics come into play because diversity, especially diversity of thought, comes from young people.

Gigerich sees India as a good example of how the numbers have been backed by an attention to quality.

“Over the past three to four years, we have seen a lot of momentum in Bangalore’s tech industry, both due to its growing population and its ability to attract better educated people,” he says. “And that doesn’t just apply to a stronger technology-skilled workforce, it extends to better-educated employees in corporate finance, procurement and legal departments.

What role does immigration play?

Japan, which has faced the problem of declining birth rates and an aging population, has tried to reverse the trend with a number of policies, including giving fathers more time to stay at home. after the birth of a baby and better support for working mothers. work.

The problem has become so urgent that it is pushing the government to rethink one of the country’s taboos: immigration.

Japan’s immigration policy is one of the most restrictive among industrialized nations as it rarely grants refugee status and only allows blue-collar foreign workers to stay in the country for up to five years without being rejoined. by members of their family.

However, under the “specified skills” visa system created in 2019, a Chinese construction worker was the first to be allowed to bring his family from China in May 2022.

While it could be part of the solution, immigration is also often a very sensitive topic with multiple implications that go beyond close corporate jurisdiction and interests, some argue.

“Demography is above all mathematics, but the great unknown is immigration”, underlines René Buck, CEO of the FDI consulting firm BCI Global.

“It is difficult to assess the role that immigration can play in reversing or containing the negative effects of falling birth rates,” he adds. “It is difficult to pinpoint immigration volumes and to make projections of the role it will play in a certain future trends in the country’s workforce, as it is highly policy dependent.

Immigration, says Buck, is too hot a topic for companies to get involved on their own and they prefer to look for reliable trends on which to base their FDI site selection process.

Depending on the type, however, some type of immigration has a role to play when it comes to protecting the growth of the labor force from the challenges posed by demographic changes.

“Pools of educated youth in less developed economies are an opportunity for more mature economies to revitalize an aging workforce,” says Gigerich.

Growing population, growing opportunities?

Staitsta’s ranking of the top 20 countries with the highest birth rate in 2021 was heavily dominated by African countries, with Niger leading with 47 births per 1,000 population, followed by Angola, Benin and Mali with 42, 41 and 41 respectively.

However, industry experts say this does not automatically translate to greater concentration of investors on the continent.

“Several years ago we did a presentation on growing opportunities in Africa because the labor potential is there,” says Buck of BCI Global. “Then the Arab Spring erupted, followed by the Ebola crisis and other adverse events, including political unrest.

“The post-pandemic scenario sees some African countries with less than 25% of the population vaccinated. Political risks, security risks, lack of infrastructure alone thwart the attractiveness of a growing population.

According to Gigerich, South America has become a more attractive proposition for investors due to its growing population, but it has other strengths. “Many countries in South America have strengthened their education programs and offer the advantage of a bilingual population that is often fluent in English, which attracts all investors,” he explains.

A growing population is not a strong driver of FDI unless it is supported by other important factors.

Act or adapt?

The issue of population aging and low birth rates is complex, broad and often political.

Sole proprietorships tend to have little influence, for example, over government policies regarding support for families or limiting or encouraging immigration. What companies tend to do in the medium term when looking for new locations is to adapt.

“Our corporate clients often wonder if they can manage their operations with less staff. Technology is set to play a central role in this,” says BCI Global’s Buck.

Robotization and the use of AI, for example, are being considered by some to address labor shortages in manufacturing and warehousing.

“AI, robots and broader technology are certainly part of the solution as well,” says Gigerich. “It often started as a band-aid, but is now being implemented on a more regular basis across many industries.”

Martin E. Berry