The Best Investment Opportunity Since the End of the Vietnamese War

When a demographic is missing, it needs replacing.

The main driver of GDP growth is demographics, and at this time, most mature economies are in, or about to enter, an old-age bulge. The ‘baby-boomer’ cohort has matured past their peak earning, spending, and saving years (prime-age, 34–54 years), and the cohort that is coming up from behind is too small to replace the boomer cohort. We are transitioning from demographic boom, to demographic bust. The unavoidable and predictable effect of this is slower GDP growth at best, or GDP contraction at worst. Technology and low interest rates can counterbalance part of this effect and stabilize the GDP temporarily, but nothing, short of repopulating the prime-age cohort, is going to bring back significant GDP growth. Now, the western economies have been handed, in the form of refugees, an opportunity to do just that. Sadly, no-one seems to recognize this as an investment opportunity that has the potential of transforming the demographic bust into a demographic boom, while at-the-same-time, saving millions of people from unimaginable suffering.

The Middle-Eastern conflicts have created a refugee disaster not seen since the end of the Vietnamese War. It doesn’t have to be this way. These refugees are the most highly motivated human beings on the planet at the moment, and that is exactly what the Western economies need. Ironically, these frightened and abused people have the potential to save us from the coming demographic bust. Our birthrate is insufficient to replace the boomer prime-age cohort, so why are we actively refusing a ready-made cohort replacement solution? Misguided, short-term focus on the cost of accepting these refugees, while willfully ignoring the huge future dividend that they would provide, seems to be at the core of the West’s hesitation. The mature economies of the World should be competing for these people, instead of wasting money trying to keep them out.

There is definitely an up-front cost to taking-in refugees, but that is only temporary and should be viewed as an investment that will return orders-of-magnitude more in the future. In the U.S., by 1990, Vietnamese “refugees from the 1975–1980 arrival cohort earned 20% more, worked 4% more hours, and improved their English skills by 11% relative to economic immigrants”, (U.S. Department of Immigration and Citizenship). Refugees and immigrants are 30% more likely to start a business than non-immigrants, and those businesses employed an estimated 4.7 million people in 2007, (http://www.whitehouse.gov/blog/2012/07/12/ten-ways-immigrants-help-build-and-strengthen-our-economy). Refugees and immigrants produce an increase in spending on local goods, and housing, as well as an increase in tax revenue; in other words, all the activities that result in GDP growth.

If we refuse to invest in these refugees, we will have failed not only in moral and humanitarian terms, but in terms of our own financial self-interest. If we fail to invest in the Human capital that the refugees are offering, we will have to accept progressively smaller GDP readings, lower living standards, and a blood-stained collective conscience,

Nicholas Gomez

Partner, ANG Traders

www.angtraders.com

Forty years of private equity trading, and still learning.

Forty years of private equity trading, and still learning.