Wednesday, December 25, 2013

Africa's growing middle class - myth or reality?

After years of headlines about Africa’s poverty, its emerging middle-class is now grabbing attention as a driver of growth and a surging pool of consumers ready to be tapped by market-hungry investors. A booming economy has made a big difference. Over the past ten years, per capita income has increased by more than 30% over the continent and a good chunk of the new riches is trickling down to the ordinary people.

Growing for sure, but how big is Africa’s middle class? In 2011, the African Development Bank made the headlines with a report that defined the African middle class as those with a daily consumption of USD2 to USD20 (in 2005 purchasing power parity). According to that definition, 34% of the continent’s population in 2010 was already ‘middle class’. However professional services firm Ernst & Young and the Human Development Report 2013 both claim that a more useful definition of middle class is people earning between USD10 and USD100 a day (in 2005 PPP). According to this more conservative definition, the size of sub-Saharan Africa’s middle class is expected to grow to 57 million in 2020 and 107 million in 2030, up from 32 million in 2009. These figures point to a doubling in size of the sub-Saharan Africa’s middle class every ten years.

Irrespective of the definition used, it is an indubitable fact that a growing number of Africans are joining the ranks of the world’s consumers. Private consumption in Africa grew by USD568 billion from 2000 to 2010. From 2012 to 2020, consumer-facing industries are expected to grow a further USD410 billion, representing the continent’s largest business opportunity.

Three important phenomena have a very strong correlation with the rise of the African consumer. The most powerful is Africa’s high urbanisation rate, making the African urban consumer better informed – 56% of them own internet-capable mobile devices – and certainly easier to reach. By 2030, 50% of the continent’s population will be living in urban centres. The other phenomenon is what economists call the demographic dividend. Though Africa’s population is still growing, families are becoming smaller and the ratio of workers to children and the elderly is increasing. The translation of this demographic dividend in terms of higher propensity to consume is obvious. Thirdly, Africa’s many regional blocks promoting free movement of goods make it easier, at least in theory, for producers to reach a larger consumer base. Africa’s growing middle class? If not yet a reality, certainly a reality in the making. The middle class having such wide social and political connotations, it would be more appropriate to talk of a consuming class. But for a continent used to living with huge disparities, the consumer phenomenon is uneven. 60% of the continent’s population still survives on less than USD2 a day. Ultimately, the emergence of the African consumer can only be sustained if the continent puts in place strategies that expand prosperity for all.

We propose to complete this picture on Africa’s growing middle class with a few words on Africa’s super rich. Africa’s high net worth individuals, defined as those with investable assets of USD 1 million or more grew by 9.9% in 2012, representing the world’s second fastest growth after that of North America. Kenya is listed as having 8,400 dollar millionaires behind South Africa, Egypt and Nigeria which have 48,800, 23,000 and 15,900 HNWIs respectively.
Africa's Middle Class to Triple by 2060
Sources:
World Wealth Report 2012; Deloitte on Africa; McKinsey ‘Lions on the Move’ and ‘The Rise of the African Consumer’; The Economist ‘Aspiring Africa’ March 2013; World Bank Africa’s Pulse; 2013 IbrahimForum Facts and Figures; Human Development Report 2013

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