Posted by: Martin | April 5, 2010

Fundamentals of the Property Market: Population and Economic growth

Population growth

Population statistics for the Ivory Coast should be reasonably accurate I believe. The World Bank shows figures up to 2008 as per below and gives a population figure of 20,591,302 for 2008. I kind of think they should round it to the last 1,000 or 10,000 even – there’s got to be migration, births and deaths that are unaccounted for, and the population changes continuously, so the number has to be an estimate to some degree. However, for the impact on the property market, I’m more interested in the trend and for that it’s enough if the  error in the population figure isn’t moving around too much from year to year.

Looking at the figures behind the table above, I calculate an average yearly population increase of 2.217% based on the 2003-2008 period. With increased wealth, increased use of birth control, and decreased reliance on children for economic support, the population growth should eventually abate, but the Ivory Coast isnt really there yet, and I would extrapolate the current trend at least 10 years into the future.

Extrapolating the 2003-2008 trend gives a population of 21.5 million for 2010 and 26.8 million in 2020. In their medium variant projection from 2008 the UN projects (source:  World Population Prospects) the following for the Ivory Coast:

2020: 26.95M

2030: 32.55M

2040: 38.13M

Looking at Abidjan separately, due to urbanisation it can be expected that the growth rate of Abidjan will be greater than that of the country as a whole. Looking at urban population growth data from Gapminder for the Ivory Coast, the growth rate seem to have been in the 2.5% to 2.9% range  for the last decade.

So in conclusion it is almost certain that the population of the Ivory Coast will continue to grow quite dramatically, and that of Abidjan will grow even more so, boding well for the demand of properties.

Economic growth

For the demand of properties the population growth is an important factor, but the purchase power of the population is possibly even more important. To get an idea of the purchase power I’m looking at data of the Gross National Income (GNI) per capita provided by the World Bank:

GNI data is less accurate than population data (estimating the informal sector must be tricky) and also much less predictable.  In the graph above one can see the peak in the early 1980s due to high commodity prices, and then basically two lost decades including a drop due to the political turmoil starting with the coup in 1999.

Even if the real GNI per capita stays flat – meaning essentially that the Ivory Coast stays poor – with the population increase it would still mean an increased demand for property.  I see a flat GNI per capita as a bad case scenario, and think the GNI per capita can increase quite a lot, as it seems to have done since 2003, even without significant improvements in governance, rule of law or business climate.

The Ivory Coast, just like the rest of the developing world, benefits greatly from ideas and technology transfer coming from scientific and  technology progress made in the whole world – cellphones being one example of such transfer.  Also, there has been a relatively strong ecenomic growth trend in the whole of Africa since year 2000 (I’d speculate one of many causes is reduced influence of inefficient and corrupt state monopolies controlling many sectors of the economy) and the Ivory Coast just need to catch up with the trend, if politics stop sabotaging the economic development.

The World Bank’s Ivory Coast country briefing has a quite optimistic take on future economic growth:

Real GDP growth is estimated to reach 4.1% in 2010 and to average 5.3% from 2011 to 2014, assuming continued progress with political normalization and security. Inflation is estimated to be between 2.5% and 3% over the same five-year period.

Other more specific  factors affecting purchase power and/or the demand for properties worth mentioning include:

-Extraxtion of oil off the coast of the Ivory Coast.

-Potential relocation of the African Development Bank and other international structures back to Abidjan.

-Infrastructure that must have been quite fine in the 80s but which is in a state of disrepair and continues to get worse.

-Electricity dropping out – a problem which very recently has gotten worse

-World market prices for Ivory Coast’s main exported commodities; Cocoa and Coffee

-The availability of mortgages

-And as mentioned previously, a potential influx of tourists with high purchase power.


Responses

  1. A couple of weeks back the IMF downgraded their growth estimates for 2010 to 3% as a result of delayed elections and electricity problems.

  2. Ok, that’s interesting – are the IMF estimates publicly available (I had a quick look at the IMF website but didnt find it)

    I get the electricity, but I would like to see their reasoning for delayed elections leading to lower growth. I remember reading about a study showing that having elections but without having other elements of a functioning democracy such as division of power and checks and balances actually leads to lower growth than not having elections at all. Kind of think that applies to the Ivory Coast.

  3. […] the post about population growth I got the 2.2% figure for the Ivory Coast as a whole, and estimated that urbanisation would make […]


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