Monday, December 15, 2014

African middle class: myth or fact?

The modern definition of middle class says Africa is joining the world’s consumers of dishwashers, refrigerators and automobiles. Its emerging middle class is now the subject of optimistic chatter. Several reports on the middle class in Africa paint a picture of an African golden age full of possibilities for driving growth through middle-class consumption. They have unleashed a glee among corporates who are salivating over the opportunity of selling to more than 300-plus million middle-class Africans they had not noticed before. If 327 million middle-class Africans really existed, investors would consider the continent a potentially lucrative market for making deals in real estate, retail, wholesale and communications.

But are there 300 million middle-class Africans? It all depends on how you define the middle class.

The McKinsey Global Institute, a consulting firm, defines middle-class households as those with incomes of $20,000 (about R230,000) a year or more, and says Africa’s middle class outstrips India’s (as few as 15.7 million households). Standard Bank defines the middle class as households that spend between $8,500 and $42,000 a year,

The African Development Bank definition is broader. It says Africa’s middle class ranges from earning $520 to $5,200 (or $2 to $20 a day.) Unlike McKinsey, it ranks those earning more than $20 000 a year as rich. It claims the size of the African middle class, those earning between $2 to $20 a day, nearly tripled to 313million people in 2010, or 34.3 percent of the continent’s population. The continent according to its statistics has moved from stagnation in individual prosperity before 2000 to impressive gains in the numbers of people with middle-class levels of income. Except that the African Development Bank middle class of these projections is not the same as the anecdotal middle class that purchases dishwashers and weekend holidays. For investment banks, multinational corporations, real estate developers and traders, the middle class is defined by purchasing power and signifies a potentially untapped market. For this reason, a more accurate definition of the middle class requires a higher purchasing-power bracket that shows that households are living beyond subsistence

The bank’s category is an amalgamation of a “floating middle class” whose daily consumption levels range from $2 to $4 a day and a stable middle class whose consumption levels lie between $4 and $20 a day. This is a very broad definition and not a conventional middle class. At a maximum of $4 a day, you are unlikely to participate in higher education, live in the suburbs or fulfil the same political and economic role in the life of a nation that the middle classes of developed countries do. Put simply, members of this floating middle class are different politically and economically from the wealthier class.

What about removing the floating middle class ($2 to $4 a day) from the equation and examining instead the gains made by combining the stable $4 to $20 class? Have they grown? When comparing the proportions of this stable $4 to $20 middle class, not much has changed. Although it nearly doubled from 62million in 1980 to 123million in 2010, its share of the continent’s population has decreased slightly from 14.6 percent in 1980 to 13.4 percent in 2010. In terms of proportions, the stable middle class ($4 to $20) appears to have shrunk a bit, while the proportion of the floating class has increased.

Earning a maximum of $4 a day, this floating middle class has little disposable income to spend and is unlikely to be capable of fulfilling the middle-class promise of economic and political stability and remain vulnerable to external food and fuel price spikes, inflation and the spectre of sliding back to sub-$2 levels of poverty. Their share of the population has increased from 14.7 percent in 2000 to 20.9 percent in 2010, according to the African Development Bank. They account for about 200million of the bank’s misleading middle-class definition. They remain barely above the poverty line and have trouble making the transition into the more stable middle-class category of $4 to $20 a day. Just as the floating class may migrate upwards towards becoming a more traditional middle class, so too may it fall back below the $2 a day line in the face of sudden shocks like rises in food and fuel prices, which this group cannot absorb as easily as the richer classes are able to do. The mass mobilisations in Nigeria in January 2012 that brought Lagos to a standstill over the withdrawal of the fuel subsidy, Uganda’s walk-to-work protests in April 2011 and the rioting in Mozambique in September 2010 over an increase in the price of bread are warnings of how volatile an urban floating middle class can be when such shocks occur. The floating middle class amounts to more than a third of the population in 19 countries (a fifth in 26 countries). In Africa’s three most populous countries, Nigeria, Ethiopia and Egypt, more than half the middle class is in the floating category, living on less than $4 a day.

The African Development Bank’s misdefined middle class. Reports on the size of Africa’s middle class highlight presumptions and miscalculations. The African Development Bank’s 2011 report conceded that about 60 percent of Africa’s middle class, about 199 million people, were barely out of poverty. Does Africa’s population really have more spending power? Are fewer Africans hungry? The debate on what constitutes "middle class" turns “philosophical” at times. Some definitions include concepts such as professional status, education, and the variety of cultural and consumption habits. The banks seem to think it is all about dubious income levels. Socialists defines class based on who owns or does not own the means of production. All men and women who because of their lack of property are forced to seek work for a wage or a salary are members of the working class. Whether you work in a factory or an office whether you push a barrow or a pen if you have to seek a wage or a salary in order to live you are a member of the working class.

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