Latin Lessons

Hydroelectricity, service fees and manpower: How South America is dealing with population growth.

“On bad mornings,” Paul Krugman remarked in 2009, “I wake up and think that we are turning into a Latin American country.” Not quite, one might respond. At least with respect to demographic development, it’s rather the other way around. Here, it’s South America that’s following the United States. Taken to the extremes, we witness a gradual transition from a “young” to an “old” region.

South America today houses around 393 million people. In the next 40 years, this number is expected to increase by 25% percent. And while the past saw a steady rise in young people, the future will be marked by predominantly elderly population. Today, roughly 27 percent are below the age of 15, while by 2050 this number will drop to 16 percent. Inversely, number of those above the age of 65 will increase three times reaching 20 percent by 2050.

Population growth in South America in the next decade will take place in the urban areas, while the number of rural inhabitants is not expected to change. This doesn’t mean, though, that rural areas will not be affected by the development. On the contrary, growing urbanization will encroach on the more sparsely populated rural territories. This will pose great challenges to biodiversity as will the rising demand for energy, water and food security by the expanding population.

Biodiversity with its provision of natural resources and multifaceted ecosystems is one of the greatest sources of wealth of South America. The renewable water reserves of Brazil, for instance, equal those of the whole of Asia and its arable land is as large as that of the United States and Russia together. Brazil, Colombia, Ecuador, Peru and Venezuela all belong to the most biologically diverse countries in the world and the region’s economic growth relies heavily on the export of raw materials.

Some of the latest strategies of South America to meet the soaring demand of the expanding population is discussed in the December 2010 issue of FORO . One possible strategy to address energy issues, for example, is investment in renewable resources. Given the limited nature of fossil fuels, ‘renewable’ always sounds like good news. Yet, there are side effects on biodiversity and environment, as the issue explains.

A project in Peru by the Brazilian energy giant Electrobras, the Inambari Hydroelectric Project, for instance, will result in the evacuation of 4.000 to 8.000 people, flood 378 km² and potentially deforest an additional 308.000 hectares of jungle. Most likely, it will also damage the local fishing industry as it has happened with the company’s hydroelectric plant Itaipú in Paraguay.

Investment in alternative energy sources is booming in South America, especially in biofuels. While nowadays Brazil delivers 30 percent of the global ethanol production, other countries such as Colombia and Peru are also worth mentioning here. However, major challenge remains ensuring agricultural biodiversity and food production.

Both hydroelectric power and biofuel production are calling for a responsible and efficient water management. Even neglecting the fact that population is growing, the region’s rivers, lakes, glaciers and groundwater reserves are already threatened by pollution, salinization and desertification.

In some South American countries initiatives to avoid future water scarcity and conflicts have already been launched quite successfully. Bolivia, for example, introduced an environmental service fee on citizens living in lower areas of a water basin to finance management projects in the upper area of that basin.

In terms of food security of the expanding population, South America is divided on production of genetically modified organisms (GMOs). In most countries, the cultivation of GM crops is growing, while Peru, Ecuador, Venezuela and Guyana have put a ban on it. It’s not an easy topic. Some say GMOs foster more efficient water, energy and soil use, while others argue that it enhances biodiversity loss, social exclusion and economic dependency.

So one might think it is rather Latin America that should feel wary sometimes when getting out of bed in the morning. However, while the demographic development undoubtedly puts a drain on the region’s natural resources and environmental heritage, it also offers opportunities.

In the past, demographic growth has been much more rapid than it is predicted to occur in the future. Within the last 40 years, the population has grown by nearly 200 million people, i.e. more than twice of what is expected during the next four decades. This rapid development puts the region in a somewhat advantageous position because it has opened a so-called “demographic window”, as the January issue of FORO Nacional/Internacional explains.

The “demographic window” is the time span, within which the work force outnumber children and seniors put together, i.e. those depending on the working population. This ratio is known as the demographic dependency ratio. According to the UN, it is falling in South America and will keep on doing so until 2025. By 2050, the ratio is expected to be back at the level of the year 2000. The demographic window of the region, thus, comprises 50 years, from 2000 to 2050.

Of course, all other things equal, the lower the demographic dependency ratio, the higher the regional productive capacity. The demographic window, therefore, offers South America the opportunity to accumulate wealth, foster economic growth and prepare the region for the demanding effects of an expanding and aging population.