Ethiopia: Opinion on Africa’s middle class opportunity is divided

Opinion on Africa’s middle class opportunity is divided. Before this year, Nestlé announced its disappointment with the scale and increase of Africa’s middle class, and cut its regional workforce by 15%. Only a few months later, however, AB InBev’s takeover of SABMiller – one of the major proposed corporate takeovers ever of a UK-listed entity – was motivated in large part by SABMiller’s proven increase markets in Africa.

‘Middle class’ households are typically defined as those that spend at least half of their gain on goods and services beyond just food and basic necessities.

The emergence of this ‘consumer class’ helps to propel increase to the next level. Buoyed by supportive demographics, a rising middle class will make request grow, businesses prosper, employment increase and economies flourish. It’s a virtuous cycle.

Traditionally, the ‘middle class’ has as well played an significant role in political developments. In sub-Saharan Africa, the rise of multi-party politics in the 1990s, with calls for better accountability, was often closely correlated with improved economic management and faster increase.

Newly-democratic South Africa saw an impressive emergence of a middle class, even against the backdrop of sometimes disappointing increase. According to the Unilever Institute, South Africa’s middle class grew by around 250% between 2004 and 2012.

By the eve of the world financial crisis, South Africa’s new ‘black’ middle class exceeded its additional-traditionally ‘white’ middle class in terms of spending power. Despite weak in general increase, the new middle class has continued to rise since again.

South Africa’s evolution – with its well-developed retail and financial sectors – is well-documented. But accurate measurement of the rising middle class has been additional problematic elsewhere.

Just how developed is Africa’s middle class? Different studies have offered very different interpretations.

How large is the middle class?

An African Development Bank Study (AfDB) from 2011 attempted to generate a definition of middle class additional suited to local conditions in Africa. Somewhat controversially, it defined middle class as those living on US$2-20 a day (adjusted for purchasing power parity). This included the so-called ‘floating middle’ – households living on $2-4/day, who may be knocked back into poverty in the event of a severe economic shock. The AfDB study, using this definition, suggested that roughly one-third of Africa’s people was middle class.

However, an extra study, published by Pew Research Center this time– using the narrower and additional internationally accepted definition of middle class (incomes of $10/day or additional) – suggested that only 6% of Africa’s people could be classified as middle gain. The Pew study implied that while African economies had made great strides in lifting a lot of millions of households out of poverty in the recent completed, a far smaller proportion had reached middle-gain level.

In Nigeria, according to Pew, the share of the poor fell 18 % points between 2001 and 2011, and the proportion of low gain earners grew 17 % points, while during the same period the share of middle gain earners rose just 1 % point.

There were similar results in Ethiopia, where an even better share of its people was lifted out of poverty. The share of the poor fell by 27 % points, while the proportion of middle gain earners increased just 1 % point.

Should we be concerned?

Africa’s middle class experience does not necessarily set it apart from other developing regions. Even in Asia three or four decades ago, the large majority of people lifted out of poverty remained on low incomes – for a while at least. Development does not stop there.

The ability to earn a steady gain is presently increasingly recognised as the one factor that distinguishes those living in poverty from those able to emerge as middle-gain earners. As a result, the debate has correctly turned to whether Africa is generating conducive employment opportunities to ensure growing gain levels.

Sub-Saharan African economies with their additional chequered histories – often marred by dependence on a single commodity – have seen much additional volatile increase paths than elsewhere. In the completed, this may have been a factor holding back the emergence of Africa’s middle class.

While the recent decline in poverty is encouraging, to build further on the evolution so far, the policy prescriptions for Africa’s economies are as well clear. Anything that can be done to reduce the volatility of increase, and in particular, the volatility of employment, should be put in place.

Africa needs additional investment , additional consistency of capital inflows, particularly counter-cyclical flows, and additional democracy, with better evolution in improving governance. There are no short-cuts to next prosperity.

Given that the region, with its favourable demographics, represents one of the best counter-weights to the secular stagnation that threatens developed economies, perhaps Africa’s needs as well deserve an even better policy focus on a world level.

Significant foundations for the emergence of Africa’s middle class have by presently been put in place with its success in poverty alleviation. It is in the ultimate interest of the world economy that this evolution is built upon.