Africa’s ‘middle class’: What is it good for?

2014-08-25 08:00

Yet another estimate of the size of Africa’s middle class was released last week, pointedly undermining the exaggerated hype cultivated by the African Development Bank.

The bank made waves in 2011 by asserting that a third of all Africans are middle class, but its definition of middle class was wide.

Standard Bank senior political economist Simon Freemantle has tried to produce a more “useful” estimate for 11 countries using a definition of middle class based on South African living standard measures (LSMs).

These are categories created by the SA Audience Research Foundation and used to gauge the advertising value of media products like City Press.

What emerges is that the middle class (roughly LSM 7 to 10) varies between 21% of the population in Angola to basically 0% in Ethiopia.

In aggregate, about 7% of the 11 countries’ populations can be considered middle class, and another 7% are lower middle class.

In total, that amounts to 15?million households, of which half are in Nigeria.

This stands in stark contrast to the African Development Bank’s figure of 34% for Africa as a whole.

Neither estimate uses the term ‘middle class’ in a sociological or political sense.

Instead, the idea is to show how many potential consumers of different products and services there might be in any given market.

The middle class LSMs would be associated with the market for expensive goods like televisions or cars and financial services.

The difference between Freemantle and the development bank’s report is really just the definition.

The bank did admit that the real middle class is much smaller, and came up with an estimate of 13.4% of the African population, which echoes Freemantle’s upper and lower middle classes put together.

That overall total doesn’t mean much, though. The most important thing that emerges is how completely incomparable the situation is in different African countries.

Apart from Ethiopia, Uganda, Tanzania, South Sudan and Mozambique also have practically no middle class at all, using Standard Banks’ definition.

South Sudan’s tiny middle class consists virtually entirely of military and aid organisation employees, says Freemantle.

The same definition would classify almost half of South Africa’s population as middle or upper middle class, with about 27% being low income (LSM 1-4).

The 11 countries were chosen for a mix of their scale, growth rate and the amount of interest South African companies have shown in them, Freemantle said at a media briefing this week.

While his estimate undermines the generous numbers of the development bank, he agrees that the middle class is growing rapidly.

The total tally of middle class households in 2000 was 5?million, compared with 15?million now, says Freemantle.

Extrapolating to 2030, he estimates that the combined middle class in the 11 countries will grow to 40?million, mostly in Nigeria.

The low-income populations will, however, also grow and still constitute the majority of people by 2030.

The purpose of the whole exercise is, however, to gauge how big the consumer markets in these countries are and will become.

Just because a sizable group fitting into an LSM exists, does not mean companies can assume they are the same kind of consumer as their South African equivalents, says Freemantle.

While South Africa’s retail is almost completely formalised and centred on malls, 90% or more of Nigerian retail takes place in informal markets, which requires a different approach.

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