Friday, October 23, 2015

Where are the middle class?

In the cafés of Accra’s financial district American-accented entrepreneurs order lattes and ponder spreadsheets. “You couldn’t have imagined this even five years ago,” Joseph Baffour, a local financier, says of his surroundings. “There’s been an astronomical change.”

Just a few miles down the road from Accra’s coffee-connoisseurs are the columns of smoke that billow above Agbogbloshie, a digital dumping ground. Here hundreds of men risk their health burning old electronics for useful parts. Leave the capital altogether and the celebrated middle class grows harder still to spot: high-rises give way to huts, suits to shoelessness.

The Pew Research Centre reckons that just 6% of Africans qualify as middle class, which it defines as those earning $10-$20 a day. On this measure the number of middle-income earners in Africa barely changed in the decade to 2011.

Data from EIU Canback, a consultancy (and sister-company of The Economist), show some growth in the decade to 2014 but it is painfully slow: 90% of Africans still fall below the threshold of $10 a day and the proportion in the $10-$20 middle class (excluding very atypical South Africa), rose from 4.4% to only 6.2% between 2004 and 2014; over the same decade, the proportion defined as “upper middle” ($20-$50 a day) went from another 1.4% to 2.3%. Other surveys are also disappointing.

Standard Bank, a South African lender, thinks that though the number has increased, there are still only 15m middle class households in 11 of sub-Saharan Africa’s bigger economies (excluding South Africa and using a range of $15-$115 a day).

Why is the middle class so small after a decade in which economic growth has averaged more than 5% a year, about twice as fast as population growth. One reason is that the proceeds of economic growth are shared very unequally. In recent years inequality has increased alongside growth in most parts of Africa.

Another reason is that poverty in many parts of Africa is so deep that even though incomes may have doubled for millions of people, they are now merely poor rather than extremely poor. Laurence Chandy at the Brookings Institution, an American think tank, points out that the average person in extreme poverty in Africa lived on just 74 cents a day in 2011, compared with 98 cents in other parts of the developing world. Ethiopia, which is both one of Africa’s most populous nations and best developmental performers, is a good example. Its share of people living on more than $10 a day has increased more than 10 times in the decade to 2014 to 2% of the population: but that still left close to 98% of Ethiopians living below this threshold.

A low wage is better than none at all, but those living on $10-$20 a day are hardly living lives of luxury. For most of them, life is still tough. Africa has failed to develop industries that generate lots of employment and pay good wages. Only a few countries manufacture very much, largely because national markets are small and barriers to trading within Africa are huge. Most people who leave the countryside move into labour-intensive but not very productive jobs such as trading in markets. John Page, also of Brookings, reckons that such jobs are on average only about twice as productive as the ones that many left behind.

For investors who piled in on the promise of a new African affluent middle class has proved false. The commodities boom has ended and all but the richest tend to stop spending at the first sign of economic trouble, as they have done in Nigeria and South Africa, the continent’s two largest economies. Having overestimated the number of upwardly mobile people, many big firms are expanding far more slowly than they expected. A few years ago, Shoprite Holdings, South Africa’s largest retailer, envisaged opening 600-800 stores in Nigeria. It currently has 12. Across the continent in Kenya, Cadbury and Coca-Cola have closed factories. “We thought this would be the next Asia”, Nestlé’s chief executive for equatorial Africa said earlier this year. “But we have realised the middle class…is extremely small and it is not really growing.”

No comments: