Meet the exploding African middle class

2011-05-07 21:15

The best by-product of a stable Africa has been an explosion of a middle class buoyed by market reforms and political stability.

A report released this week by the African Development Bank at the World Economic Forum reveals that the African middle class now stands at 34% of the total population – a figure of 300 million people.

“This is the same size as the middle class in India or China,” says the African Development Bank’s chief economist, Mthuli Ncube. It’s a figure up from about 135 million people in 1980 and 200 million people in 2000.

“These are the people driving cars, owning homes, sending their children to private schools, buying gadgets. This is the African middle class,” says Ncube.

The growth in the middle class outstrips general population growth.

At this week’s World Economic Forum in Cape Town, a palpable confidence and zest pervaded the place, and not only because it’s a moneyed gathering.

Average yearly growth that outstrips the global average has made the continent the go-to spot of emerging markets. And the rapid recreation of the missing middle class in the past decade is a leading factor.

The image of Africa as the basket case has altered fundamentally, say luxury goods manufacturers, who note significant increases in everything from leather bags to rose champagne.

“The middle class is a strong medium- and long-term development indicator, partly because its growth is strongly associated with faster poverty reduction,” says the report.

So, who is middle class? Economists calculate it as those individuals who earn a yearly income exceeding $3 900 (R26 327), though Ncube says there are huge differences among countries.

The most accurate measure is purchasing power parity – that is, an index based on the same basket of goods across countries.

If you define by households, the middle classes are generally urban, working people who are either employed or who are self-starters. Entrepreneurs, small-and micro-business owners make up a substantial slice.

Ncube says Africa has a gross domestic product of $1.6 trillion, with over half of consumer spending coming from the pockets of this new class. How do you become middle class?

“The biggest driver for people moving into the middle class is education,” says Ncube, adding that like him, this class is a product of parents who were poor but who ensured their children received an education.

“Market-based policies and strong growth have propelled the growth of the middle class.”

It’s great for business as mobile phones, electronics sales and luxury goods are all writing up higher and higher profits. But there’s an additional benefit.

The African Development Bank says: “The rise in class status is largely correlated with a rise in progressive values that are highly conducive to strong economic growth.

In particular, the middle class is more likely to have values aligned with greater market competition and better governance, greater gender equality, and more investment in higher education, science and technology than those of the poor.”

And governments must be keeping a beady eye on North Africa, where revolutions in Tunisia and Egypt have been led by the middle classes. Economists and social scientists regard this class as essential not only for economic growth, but for deepening democracy.

“They are the conscious voters who keep the flame of democracy going,” says Ncube, who is based in Tunis at the bank’s headquarters.

He was previously head of the Wits Business School and Dean of the Faculty of Commerce at the University of the Witwatersrand. But it’s not all good news.

Ncube says the growth across the continent is driving debt-driven consumption – a trend that South Africa knows well.

And it’s a fragile class, not yet cohesive.“About 60% of Africa’s middle class, approximately 180 million people, remain barely out of the poor category.

They are in a vulnerable position and face the constant possibility of dropping back into the poor category in the event of any exogenous shocks.”

What can governments do to stimulate the growth and strengthening of a middle class?

Ncube says the silver bullet is good education and the rebuilding of the university sector; ongoing investment in infrastructure such as roads and energy; and moving away from a fixation with foreign direct investment to making countries easier for local businesses to invest in.

Then, Ncube thinks for a moment of just one game-changer. “Imagine, just imagine, if there were no power cuts in Africa.

Power cuts reduce productivity by 30%. If we can concentrate on power, it will be the game-changer.”

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