Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / Why Youth Unemployment Is the Emerging Market Time Bomb
Transcript
- Lucas: Luna, let's talk about the biggest economic challenge most emerging markets face that doesn't show up directly in GDP numbers — youth unemployment. Luna: You mean the ticking demographic time bomb that everyone knows about but rarely gets the attention it deserves? Lucas: Exactly. I've been looking at the numbers from the International Labour Organization's latest report, and they're stark. Roughly 65 percent of Egypt's population is under 30 years old. Yet youth unemployment is hovering near 30 percent. That's not just a statistic — it's a recipe for social instability. Luna: And Egypt isn't alone. India has about 15 million young people entering the workforce every year, but the economy isn't generating enough formal jobs to absorb them. Lucas: Right. The so-called demographic dividend — a young, growing workforce — only works if there are jobs for them. And right now, automation is hollowing out the manufacturing roles that historically absorbed that labor. Vietnam, for example, built its miracle on low-cost assembly. But as factories automate, that model is under threat. Luna: So the classic development path — move from agriculture to manufacturing to services — is getting disrupted in the middle. Lucas: Precisely. And it shows in the market data. Look at the Korea ETF, ticker e w y, down almost 8 percent in the past week. South Korea has one of the highest youth unemployment rates among developed economies — around 22 percent for 15-to-24-year-olds. That's partly structural, a mismatch between education and what employers need. Luna: That's a huge number for a country that's in the OECD. And it's a warning signal for other emerging markets hoping to follow the Korean model. Lucas: Exactly. Now contrast that with China. The China Internet ETF, K-W-E-B, is up 2.3 percent this week. But China's working-age population has been shrinking since 2022. Their youth unemployment problem is different — it's about overeducation and credential inflation. Millions of college graduates can't find jobs that match their expectations. Luna: So on one end you have too many young people and not enough jobs, on the other you have a shrinking workforce but still a mismatch. Lucas: The common thread is that the education system isn't aligning with the labor market. Countries are churning out graduates with degrees in fields where there's no demand, while technical and vocational skills go unfilled. In India, for instance, only about 5 percent of the workforce has formal vocational training. Compare that to Germany, where it's over 50 percent. Luna: That's a massive gap. And it's one reason why even fast-growing economies like India see high youth joblessness despite strong GDP growth. Lucas: The India ETF, i n d a, is down half a percent over the past five days. Not a big move, but the structural challenge underneath is real. If India can't generate enough formal employment for its young population, that demographic dividend turns into a liability. Luna: And what about automation? I've read that up to 70 percent of jobs in some emerging markets could be automated in the next decade. That's terrifying. Lucas: It is. And it's happening faster than policymakers are adapting. Take Mexico — the e w w ETF is up 1.9 percent this week, partly because of near-shoring from China. But the jobs coming to Mexico are increasingly automated. A new automotive plant in the north might employ 1,500 people instead of 5,000 a decade ago, because robots do the welding and painting. Luna: So the same number of goods gets produced, but with fewer workers. That's great for corporate margins, not so great for the 20-year-old looking for a job. Lucas: Exactly. And this is where the AI skills gap becomes critical. Emerging markets that invest in digital skills and AI literacy will have an advantage. Those that don't will see their young people stuck in informal work or migration. Luna: Which countries are getting it right? I've heard Rwanda is pushing coding in schools. Lucas: Rwanda is a good example — they've integrated computer science into the national curriculum from primary school. Estonia, though not an emerging market, showed the way. In the EM space, Vietnam has been surprisingly proactive, with a national AI strategy and partnerships with companies like NVIDIA to train workers. Luna: But even Vietnam faces challenges. Their ETF, ticker V-N-M, isn't listed in our data, but the broader emerging market ETF, EEM, is down 2 percent this week. That suggests investors are wary. Lucas: Partly because of the strong dollar — it's at 120.5 on the trade-weighted index, still high, despite a slight dip. That makes it harder for EM countries to service dollar-denominated debt, which in turn constrains fiscal space for education and training programs. Luna: So it's a vicious cycle. Weak currencies lead to tight budgets, which means less investment in the skills that could solve the unemployment problem. Lucas: And that feeds back into social instability. We saw it in Sri Lanka in 2022, in Kenya this year with the tax protests. Young people who can't find work are more likely to take to the streets. Luna: Which is why youth unemployment isn't just an economic issue — it's a security issue. Lucas: Speaking of making sense of these connections — if today's conversation helped clarify why this matters for your portfolio or your understanding of the world, the show stays ad-free because of listener support. You can help keep it that way at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to ensure we keep digging into these structural stories that don't always make the headlines. Lucas: Exactly. Now, let's look at what governments can actually do. One promising approach is what Bangladesh has done with the garment sector — not just relying on low wages, but investing in training programs that upgrade workers into higher-value roles. The result? Exports have held up even as wages rise. Luna: So it's about moving up the value chain, not just competing on cost. Lucas: Right. And that requires coordination between government, industry, and educators. Singapore's SkillsFuture program is a model — it gives every citizen credits to spend on training throughout their career. Some emerging markets are piloting similar ideas. Luna: But scale is the challenge. In a country like India, with a billion-plus population, even a well-designed program struggles to reach everyone. Lucas: That's where technology can help. Online learning platforms like Coursera and edX are partnering with governments to offer certifications at scale. In Egypt, for example, the government has a deal with Udacity to train 100,000 young people in AI and digital skills. Luna: One hundred thousand out of tens of millions. It's a start, but the gap is enormous. Lucas: It is. And the clock is ticking. The working-age population in many emerging markets is still growing, but automation is eating into the jobs they might have filled. If we look at Brazil, the ETF e w z is up 2.8 percent this week, partly on commodity prices. But Brazil's youth unemployment rate is around 25 percent. The commodity boom masks a deeper problem. Luna: So what's the single most important thing an investor should watch? Is it the youth unemployment rate itself, or something else? Lucas: I'd say watch the ratio of youth unemployment to adult unemployment. If that ratio is widening, it means the economy is failing its young people. Also, look at education to employment transition rates — how many graduates find formal work within a year of leaving school. Those are leading indicators. Luna: And for the average listener who isn't an economist — what's the takeaway? Lucas: The takeaway is that the emerging market growth story isn't automatic. It depends on human capital. Countries that invest in their young people, especially in digital and technical skills, will thrive. Those that don't will face instability and stagnation. The next decade will separate the winners from the losers. Luna: A sobering thought, but an important one. Lucas: Absolutely. And we'll keep tracking it. Thanks for listening.