Will the real middle class?please stand up?

2014-09-22 07:45

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South Africa’s middle class rise has been seen as a blessing in the last 20 years. It is a class with strong buying power and contributes significantly to the country’s tax. But understanding the middle class has been difficult. The Centre for Development and Enterprise has done two comparable reports on the middle class with those of other similar developing countries. The CDE has compiled these opinion articles which raises important policy-related issues

‘Middle class” is a much sought-after status – in South Africa and across the world. It is equally attractive to those who want to downplay the fact that they are quite rich and those who want reassurance that they are no longer poor. But who really are the middle classes in South Africa and comparable countries?

Definitions of middle classes vary greatly from country to country and study to study, making global comparisons very difficult. One approach is to restrict the definition to people who have incomes comparable to middle classes in rich, industrialised countries – the “global middle class”.

Another is to expand the definition to include people just emerging from survival-oriented poverty, the “local middle class”. Such people, although middle class in a certain sense, are economically insecure and are sometimes referred to as “floating classes” to capture their precarious status, at the mercy of economic downturns.

The South African middle class has been defined fairly broadly as those living in households with after-tax monthly incomes of between R5?600 and R40?000. In 2008, 16.4?million (29.9%) were middle class by this definition. That in 2006 an even larger group of some 42% of South Africans (19.9?million people) identified themselves as middle class attests to the attractiveness of the status.

If we define the middle class in a more restricted way, as lying between the incomes of R14?000 and R50?000 per month, it emerges that in 2012 black South Africans make up more than half of the middle class, having expanded from 1.7?million to 4.2?million people between 2004 and 2012.

The average monthly income of these black middle class households was R21?000, compared with the R25?000 for white households, but the annual spending power of the black middle class was R420?billion, compared with R320?billion for whites.

How should we evaluate these trends? Do they represent a sustainable transformation or should we be concerned about the rate of change? One part of the answer is to compare South Africa’s progress with other developing democracies.

For example, South Africa’s per capita income of $7?352 is significantly higher than Kenya’s ($943) and as a result, by most definitions, South Africa’s middle class is larger and better off than Kenya’s. But if we take the African Development Bank’s expanded definition, which defines the middle class in Africa to include people who earn between $2 and $20 per day, Kenya’s middle class constitutes 44.9% (17.3?million people) of the population, a larger proportion on this definition than South Africa’s 43.2% (21.4?million people).

This suggests Kenya is getting a larger proportion of the population into the lower rungs of the middle class than South Africa. That Kenya is in some senses more dynamic can be seen by the comparative average growth in gross domestic product performance over the last five years (Kenya’s is 38% while South Africa’s is 2.2%).

Brazil has been very successful in shifting people out of poverty and into broad middle class status. Their experts define those with the relatively low incomes of between $161 and $564 per month as middle class.

In these terms, the Brazilian middle class grew from 35% to nearly 50% of the population between 2001 and 2011, and now makes up 98?million of Brazil’s 197?million people. Black Brazilians account for 80% of new entrants into the class.

In India, individuals earning between $300 and $3?000 per month – what they call “the global middle class” – constitute just 4.2% of the population. This nevertheless adds up to 50?million people.

If you add in what Indian experts call the “local middle class” (earning between $86 to $171 a month) this combined group comprises 148?million people. And incomes are expanding rapidly in India, which leads to, among other things, a very large market for middle class goods and services. Income levels are expected to triple over the next two decades, and India will climb from being the 12th largest global consumer market to the fifth largest by 2025.

Different definitions of the middle class notwithstanding, one key feature of the growth and diversification of the South African middle class is that it has been driven by expansion and transformation of the public sector to a greater extent than in the comparable countries.

This is a trend that cannot be continued indefinitely, and certainly not in a time of stalling growth, uncertainty about the future and tighter limits to government spending.

If progress towards the stability and inclusiveness that a larger middle class brings is to be sustained, faster and more labour intensive, market-led growth will be necessary. This in turn will require a package of reforms from labour markets to the quality of education to remove the obstacles to faster and more inclusive growth.

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