Africa: 34% of population is middle class, rivaling India China... Good news

[General Duke]

One in three Africans is now middle class, report findsFindings challenge view of continent as a place of famine and poverty

 

 

Share David Smith in Cape Town guardian.co.uk, Thursday 5 May 2011 17.56 BST larger | smaller Article history

Young women try on shoes at a store in Johannesburg, South Africa Photograph: Per-Anders Pettersson/Getty Images

One in three Africans is middle class, a rising group of consumers to rival those of China and India, researchers have found.

 

Record numbers of people in Africa own houses and cars, use mobile phones and the internet and send their children to private schools and foreign universities, according to the African Development Bank.

 

Mthuli Ncube, the bank's chief economist, said the findings should challenge long-held perceptions of Africa as a continent of famine, poverty and hopelessness.

 

"Hey you know what, the world please wake up, this is a phenomenon in Africa that we've not spent a lot of time thinking about," Ncube said. "There is a middle class that is driven by specific factors such as education and we should change our view and work with this group to create a new Africa and make sure Africa realises its full potential."

 

Ncube said the study used an absolute definition of middle class, meaning people who spend between $2 and $20 a day, which he believed was appropriate given the cost of living for Africa's nearly 1 billion people.

 

The study found that, by last year, Africa's middle class had risen to about 34% of the continent's population, or about 313m people – up from around 111m (26%) in 1980 and 196m (27%) in 2000.

 

The growth rate of the middle class over the past 30 years was about 3.1%, slightly faster than that of the total population. Tunisia, Morocco and Egypt had proportionately the biggest middle classes in Africa, while Liberia, Burundi and Rwanda had the smallest.

 

The Africa middle classes are more likely to have salaried jobs or own small businesses. They tend not to rely entirely on public health services, seeking more expensive medical care. The middle classes tend to have fewer children and spend more on their nutrition and schooling.

 

Sales of fridges, TVs and mobile phones have surged in virtually every African country in recent years, the report said. Possession of cars and motorcycles in Ghana, for example, has gone up by 81% in the past five years.

 

"They own houses and they account for the bulk of housing ownership," Ncube said. "They own cars – people are driving cars in Lagos, in Kampala, in Harare, in Ouagadougou – it's the same middle class. You can even see it in the consumption of petrol. The bulk of them are consuming ICT services and mobile telephony, although the poor are also consumers of mobile telephone services.. They would also send their children to school, preferably private schools, but also schools outside the continent. The same class is sending their children to universities outside their home country, in South Africa, in Australia, in Canada, naturally Europe – France is a bigger absorber from the French-speaking countries – and the US."

 

The middle class was responsible for at least half of Africa's GDP of $1.6tn, he added. The trend reflected years of sustained economic growth, with sub-Saharan Africa projected at 5.5% this year.

 

"This has implications," Ncube said. "How should the rest of the world engage with Africa, given this middle class? I think it means that those who want to invest should take the opportunity and look for partners within Africa to invest jointly with."

 

The focus of aid and development assistance would also have to change in the next 10 to 15 years, he argued. "It will have to concentrate less on the bottom of the pyramid and move to the middle, which means it has to be supportive of private sector initiatives, which then are the way middle class people conduct their lives."

 

Africa has a relatively young population and has seen millions migrate from rural areas to cities, where shopping malls with designer labels and smart coffee shops are springing up across the continent. Ncube acknowledged that a widening, internet-literate middle class could pose a threat to autocratic leaders, as seen in Egypt and Tunisia.

 

"The middle class is a source of democracy in Africa in a sense that they are custodians of democracy. They are the people who are educated, they know how to vote, they know what they want, they've got interests to protect. Supporting this class in a way also helps institution building in Africa.

 

But the research found that poverty remains deeply entrenched, with 61% of Africa's population living on less than $2 a day. An estimated 21% earn only enough to spend $2 to $4 a day, leaving about 180 million people vulnerable to economic shocks that could knock them out of the new middle class.

 

At the top of the pyramid, an elite of about 100,000 Africans had a collective net worth of 60% of the continent's gross domestic product in 2008, the report said.

[General Duke]

In a challenge to the long-held impression that Africa is a continent of famine, poverty and despair, a report released today by the African Development Bank states that one in three Africans is now middle class.

 

Middle class is defined as people spending between two and 20 dollars a day.

 

BBC Focus on Africa's Paul Bakibinga spoke to Dr Mthili Ncube, the Chief Economist of African Development Bank.

[General Duke]

audio

[General Duke]

[General Duke]

JOHANNESBURG—Sustained economic growth in Africa has produced for the first time a broad middle class, one that cuts across the continent and is on par with the size of the middle classes in the billion-person emerging markets of China and India.

 

The rise of a middle class in the world's poorest continent is a dramatic marker for the global economy. At a time when the U.S., Europe and Japan are struggling to grow, Africa is beginning to beckon as a consumer of what other nations produce, thanks in part to a young population more upwardly mobile than ever before.

 

View Full Image

 

Customers at a mall in Johannesburg.

Over the past decade, the number of middle-class consumers in Africa has expanded more than 60% to 313 million, according to a new report from the African Development Bank Group. The study—one of the first efforts to document the contours of Africa's emerging consumer class—brings into focus a potentially huge and enticing frontier market for global investors.

 

In the past few years, multinational appliance makers, telecommunications companies and retailers have piled into the continent in search of these consumers who, while still relatively poor, now have money in their pockets to spend, according to Mthuli Ncube, chief economist at African Development Bank Group, the parent of the funding arm.

 

"They are creating demand, and it's driving growth," he said.

 

Last year, the continent's 313 million-person middle class— those who spend between $2 and $20 a day—comprised about 34% of the population. Its number rivals that of the middle classes in China and India, according to the study, which was reviewed by The Wall Street Journal. A decade earlier,the number was 196 million, it said.

 

Buying In

Africa's middle class has risen to 34% of the population, expanding to 313 million people.

 

View Full Image

Poverty remains a predominant feature of Africa. Some 61% of Africa's one billion people live on less than $2 a day, according to the bank. While many are getting more education and migrating from farms to better-paying jobs in cities, Africa's population growth has undercut any dramatic reduction in poverty. The report estimates 21% of Africans earn only enough to spend $2 to $4 a day, leaving about 180 million people vulnerable to economic shocks that could knock them out of this new middle class.

 

Massive disparities persist. About 100,000 of the richest Africans had a collective net worth totaling 60% of the continent's gross domestic product, according to the report, citing 2008 figures.

 

Still, Africa's emerging middle class, and the accompanying consumer demand, is seen as an increasingly powerful economic engine, one that can complement the continent's traditional reliance on agricultural, energy and mineral production and exports. About 21% of Africans are firmly entrenched in the new middle class, spending between $4 and $20 a day, the report said.

 

The bank's report acknowledges that its broad grouping of Africa's middle class includes the lower rungs of the income ladder. A stricter definition of spending $4 to $20 a day, it says, would yield a middle-class population of 120 million. Others have been even more conservative. A 2010 report from the Organization for Economic Cooperation and Development, which sets the bar for a global middle class at daily expenditures between $10 and $100, estimated a middle class of 32 million in sub-Saharan Africa, which excludes North African countries.

 

The African Development Bank study, though, argues that its grouping includes genuine consumers—those living above subsistence level and spending money on nonessential goods.

 

In a separate report last year, McKinsey & Co. estimated that the number of African middle-income consumers exceeds the figure for India.

 

These new consumers are credited with cushioning Africa from the recent global economic crisis. The International Monetary Fund projects that sub-Saharan Africa, a collection of 47 countries, will grow 5.5% this year and 6% in 2012.

 

Documenting their numbers and consumption habits across different countries presented a challenge. Given scant official statistics, bank researchers mined information from airlines for travel, auto dealerships for car purchases, and a company that sells SIM cards to analyze mobile-phone consumers. They looked at school enrollments and noticed a rising number of Africans opting for private education, another indication of a robust new middle class.

 

The data paint a picture of a continent on the move, thanks to more open markets and a greater degree of political stability. New jobs—instrumental in China's and India's growth and urbanization—are spurring migration to cities and Africa's wealthier countries.

 

Jossam Mass, a 32-year-old dressmaker from Malawi, moved to South Africa five years ago. Now his shop in Johannesburg's Oriental Plaza is benefiting directly from the new consumer class. On a good day, he says, he sees 15 women who need tailor-made dresses for weddings or functions. Last week he produced 30 suits and shirts for the groomsmen of one wedding. "They do have money to spend," Mr. Mass says of his customers. "And they sure like to spend it."

 

The continent's prospects have proved alluring for Wal-Mart Stores Inc., which has agreed to pay roughly $2.4 billion to buy 51% of South Africa's Massmart Holdings Ltd., with plans to use the discount retailer as a foothold for continental expansion. Yum Brands Inc. recently said it wants to double its KFC outlets in the next few years to 1,200. In South Africa, Google Inc. and Microsoft Corp. are behind efforts to fund local entrepreneurs, with the hope that seeding African technology firms will grow their own businesses.

 

Nestlé SA is opening a new factory in the Democratic Republic of the Congo, a central African nation repeatedly roiled by rebel insurgencies. Still, the number of people who can afford the Swiss food giant's sachets of coffee and other price-sensitive products is on the rise.

 

"The potential is huge, but the business also has to be sustainable," says Pierre Trouilhat, regional director for Nestlé based in Kenya. "The growth is now there."

 

Still, some worry that U.S. businesses, in general, may be overlooking the opportunity. Europeans, Indians and Chinese often have proved more willing to dive into new African markets.

 

Donald H. Gips, U.S. ambassador to South Africa, noted in a recent editorial in South African newspaper Business Day that Africa is now nearly as urbanized as China. That combination of urbanization and economic growth has been a boon for telecom companies—Africa now has more mobile-phone subscribers than the entire U.S. population."Yes, there are risks to doing business in Africa," he wrote. "However, here in Africa, right now,... the rewards could be as vast as the continent itself."

 

The new consumers are people like Andrew Mafundo. The 35-year-old Ugandan advertising executive says he now carries a Toshiba laptop and a BlackBerry smartphone. He drives a Toyota Rav4 and is building a five-bedroom home in Kampala, the capital.

 

But the risks can't be ignored. A series of violent elections in some of the continent's biggest markets, for instance, threatens to reverse nascent economic gains for millions of Africans.

 

On Friday, more than a dozen people were shot in Uganda when security forces fired live rounds at protesters in Kampala, following the arrest of the country's main opposition leader. Those protests are targeting President Yoweri Museveni, who has been in power for 25 years and was recently re-elected.

 

Earlier this month, voters in Nigeria, the continent's second-largest economy after South Africa, rioted, burned and bombed buildings in violence that left hundreds dead.

 

The violence underlines the necessity of ensuring growth is accompanied with efforts to improve administration and increase official transparency, says Johannes Zutt, the World Bank country director in Kenya. "Africa's prosperity depends on getting governance right," he says.

 

South Africa shows the potential upside. After white-minority rule gave way to a multiracial democracy in 1994, a black middle class has emerged.

 

The country continues to deal with racial tensions, high unemployment and patchy public services, but a new generation of consumers is changing the economy. That phenomenon has surprised even those who are now a part of it, such as Itumeleng Mamabolo, a 28-year-old clinical psychologist in Johannesburg, who just returned from his first overseas vacation, in Thailand. "I haven't grown up with the luxury of having access to money and travel," he says. "So it's a bit surreal."

[General Duke]

Who are Africa's middle class? And will they help to reduce poverty?A report says a third of Africans are now middle class. Their interests coincide with the interests of the poor and should help to bring about change

 

 

Share5 Comments (4)

African businessmen talk on their mobile phones. Photograph: Per-Anders Pettersson/Getty Images

One in three Africans are middle class. Or are they? A new report from the African Development Bank says: 34%, or 313 million Africans are now middle class (living on $2-$20 a day), after several decades without any change, a jump from 27% in 2000.

 

A similar report by the Asia Development Bank (pdf) last year found something similar in the data and noted that 56% of people in developing Asia lived at the $2-$20 a day level (all figures purchasing power parity ).

 

 

This is all good news. However, is someone living on just over $2 a day "middle class"? Two dollars is the average poverty line for developing countries, meaning you're poor or middle class – but what about in between?

 

 

There are various definitions of middle class in what is a burgeoning area of interest for poverty reduction research – stimulated perhaps by ideas about the middle classes as change-makers or catalysts. Think about the middle classes who voted with the poor for Luiz Inácio Lula da Silva as president in Brazil, or the vibrant civil society of India that brings together the poor and middle-class activists (or possibly even the middle classes who are the protesters in the Middle East).

 

 

There are at least five reasons why the middle classes (variously defined) might matter for poverty reduction. First, as small business owners their potential to hire employees. Second, their higher disposable income, a share of which could be saved and invested domestically. Third, their higher demand has potential to drive economic growth and attracts private investment. Fourth, their investment in human capital for children potentially leads to higher participation in education and a larger pool of skilled labour. And fifth, they're more likely to hold the government accountable for decisions.

 

 

In terms of evidence, development economist William Easterly (pdf) finds empirical evidence linking the middle classes and economic growth, and E Sridharan, from the University of Pennsylvania, outlines the role of the Indian middle class in promoting reform. The World Bank's Martin Ravallion (pdf) also provides evidence that empirically links a middle class to growth and poverty reduction. He notes: "Countries starting out with a small middle class judged by developing country rather than western standards [$2-$13 a day per capita] face a handicap in promoting growth and poverty reduction, though this too is largely accountable to differences in the incidence of poverty."

 

 

This means – taking this definition of poor and middle class (there is no in-between) – at any given mean consumption, the countries with lower poverty will have a large middle class and see higher subsequent rates of both growth and poverty reduction.

 

 

In the middle-class work there are a range of definitions: some relative – the middle class as the middle 60% of consumption expenditure; and some absolute – the middle classes as those living on a range of scales between $2-$100 a day, (a global middle class).

 

 

More fundamentally, any definition of the middle class needs to be clear about the extent to which the middle class "starts" at the point where poverty "ends", or whether there is an implicit distance between the characteristics of the poor and the middle class that would suggest a rather clearer demarcation. But at what point does saving start? At what point does consumption of non-essentials, such as mobile phones, start?

 

 

MIT economists Abhijit Banerjee and Esther Duflo point out, the middle classes are: likely to be less connected to agriculture; more likely to be engaged in small business activities; and benefit from formal sector employment, with a weekly or monthly salary, which enables them to adopt a longer-term perspective towards their finances.

 

 

However, in contrast to the rather idealised image of the middle class as "risk-taking entrepreneurs", Banerjee and Duflo highlight empirical evidence showing that many businesses operate at low profits or fail to experience significant growth.

 

 

What about the idea of a catalytic class? This is the idea: the catalytic class is a group, whose expansion triggers internally driven, self-sustaining, political and economic change, a group whose exertion of pressure for better governance and economic reform leads to change when the class hits a certain size (in population or economic or tax revenue size). The interests of this class coincide with the interests of the poor.

 

 

As noted in the Globe and Mail, the catalyst class (a) has an interest in accountability because they pay more taxes; (b) probably don't work for the state and thus don't see their loyalty and interests tied to the status quo; © have parents who led quite different consumption lifestyles to them; (d) probably have internet (cafe) access and cell phones; and (e) want "open business conditions, fair and honourable contracts, and a route to employment unclotted by corruption".

 

 

That sounds more like the middle class to me

[General Duke]

 

I like the posing..

[Axmed-InaJaad]

i don't know how i feel about this, im not sure if africans can pull off the middle class look.

[ANWAR]

Inshallah Somalis will pull off the middle class look ;)

[Blessed]

..and the 66% majority is dirt poor.

[The Zack]

The definition they gave "middle class" is very questionable. $2 a day?