SPECIAL REPORT: 18 million, not 300 million: That’s the size of Africa’s ‘real’ middle class-and it could disappear

New wealth report throws a spanner in the narrative of a rising Africa, but even if you don’t like it, it is hard to dismiss the numbers.

Young Ethiopian middle class women at Kaldis, a popular cafe in Addis Ababa: A new reckoning of who is middle class has some surprising results for Africa. (Photo/Per-Anders Pettersson/Getty Images).
Young Ethiopian middle class women at Kaldis, a popular cafe in Addis Ababa: A new reckoning of who is middle class has some surprising results for Africa. (Photo/Per-Anders Pettersson/Getty Images).

By Lee Mwiti

WHEN food giant Nestle cut its workforce in sub-Saharan Africa by 15% earlier this year, it had no qualms about what had led to the decision.

“We thought this would be the next Asia, but we have realised the middle class here in the region is extremely small and it is not really growing,” its chief executive for the region, Cornel Krummenacher, was quoted saying by the Financial Times in June.

Nestle SA, the world’s biggest food company, would be lucky to reach 10% in annual sales growth in coming years, Krummenacher added.

“Extremely small” is relative, but a new study shows that it is miniscule, and on the back of China-stoked global market instability could at the very least stagnate for years, or in a worst case scenario be wiped out.

In 2011, the African Development Bank (AfDB) classified 300 million people as middle-class on the continent. The resulting traction from that count fuelled everything from intellectual debate to global policy and investment decisions, adding a tailwind to the narrative of African “Lions” on the move.

When Mail & Guardian Africa posed this question to former AfDB president Donald Kaberuka in June, he had this to say: “I think we are wasting too much time on the definition of the middle class and the cut off point, it is a sterile debate.

“A dynamic middle class that rises with the sea increases domestic demand, the diversity of the economy, [its] resilience, and they also stabilise the politics of a country as well, since they have a stake in the system.”

It is because of this importance that the middle class occupies such an elevated place in development economics—in some countries such as the United States entire elections can hinge on it.

Often at the heart of political movements and new consumption trends and new businesses—which all attract investment billions seeking to meet their funding demands— it explains why understanding the size and nature of Africa’s middle class is so vital to its growth trajectory.

The AfDB’s numbers, like the majority of others that are pushed out regularly by groups from transnational banks seeking new clients to funds tapping billions for “emerging markets”, were based on household income ranges.

South Africa president Jacob Zuma cuts birthday cake: Outside a storm, fuelled by anger over some of the worst inequality levels in the world, is gathering dangerously. (Photo/Xinhua).
South Africa president Jacob Zuma cuts birthday cake: Outside a storm, fuelled by anger over some of the worst inequality levels in the world, is gathering dangerously. (Photo/Xinhua).

The problem with this is two fold; when financial catastrophe strikes, such as a breadwinner losing his job or business, that middle class status evaporates. And secondly, it does not pay enough attention to the longer-term aspirations of the middle class, which are irrevocably tied to ownership of assets.

In other words, assets allow the middle class to hang on for the duration needed to get back on their feet should they run into financial headwinds, and afford them a measure of coveted security.

To go around this problem, renowned international economic experts Anthony Shorrocks, Jima Davies and Rodrigo Lluberas also focused on a range, but one of assets rather than income, an approach they argue “break[s] new ground by defining the middle class in terms of a wealth band rather than an income range”.

Their work informs the annual global wealth databook report that was put out this month by the Zurich-based Credit Suisse Group AG, which is the world’s fourth largest wealth manager, and is also part of a wider shift to measuring middle class assets, instead of increased income and consumption.

The researchers’ set $50,000 as the lower threshold for one to be classified as middle class, while the upper limit is pegged at $500,000, using 2015 prices. It is not arbitrary: the lower band is equivalent to about two years median earnings in the US, enough to tide over a member of the middle class in the event of any setback.

The upper figure is an estimation of what it would cost to buy an annuity (such as social security or pension plans) for one close to retirement that would pay the median wage for the rest of their life, while still leaving them solidly middle class.

But because $50,000 in the US will vary in local country prices, they used purchasing power parity (PPP) values from the International Monetary Fund. As such, for one to be considered middle class in Switzerland, which has higher local prices, one would need at least $79,200 in assets. In South Africa, one would need $22,000, and close to $15,000 in Egypt.

The study found that some 664 million adults (aged 20 and older), or 14% of the world’s population, belonged to the global middle class this year. In Africa, this proportion was quantified at 3.3% of the continent’s 572 million adults.

This means just 18.8 million Africans can be classified as middle class if their net worth, and not what they spend, is used as the reference.

It is not a homogenous figure: some 4.3 million of the continent’s middle class—or one quarter—live in just one country, South Africa. If you also count Algeria, Egypt, Tunisia, Morocco and Nigeria this number rises to 14.1 million, leaving just 4.7 million of the middle class located in the rest of the continent—some 48 countries.

Nigeria, Africa’s biggest economy, counts 922,000 of its 83.3 million adults as middle class.

Source: CreditSuisse Wealth Databook 2015
Source: CreditSuisse Wealth Databook 2015

The unsettling news does not end there. Globally, the middle class were in 2015 estimated to be worth $80.7 trillion, holding a 32% share of the world’s total $250 trillion that is private wealth. For Africa, the scale of its inequality then comes into view: the middle class account for 32.1% of its wealth, proportions comparable to Latin America and China. But there is then the share of adult Africans that are above the cut-off point that is the upper band of the middle class—its richest. This group is only 0.2%, or 1.15 million adults, but accounts for a 30.6% share of the continent’s wealth.

This has serious social ramifications—in South Africa, Africa’s third most unequal country after Seychelles and Libya by Gini co-efficient, recent student protests and the huge crowds drawn by populist leader Julius Malema of the Economic Freedom Fighters (EFF) party this week has put its dangerous inequality sharply in focus.

Generally, the average wealth of the middle class in Africa, worth $834 billion or a third of the region’s wealth and having grown 140% this century, is now ten times that of the rest of the population. When the ultra-rich are factored in with the middle class, this total wealth doubles to $1.6 billion, or nearly two-thirds the share of regional wealth (but still less than a percentage point of world wealth).

It is this upper-growth trend that has informed the clutch of “fastest dollar millionaire” studies on the continent, but essentially, even after factoring in population growth, it is the rich getting richer.

READ: Africa to mint millionaires faster than rest of world over the next 10 years–Wealth Report

It is by no means an African inequality problem. The global wealth share attributed to those in the middle class and beyond is 92%, meaning the bulk of the world’s assets are owned by the 1 in 6 adults who fall in this group. And just 2%, or 96 million adults, are classified as being above the upper bound of the study’s upper middle class range

In North America, where the middle class are most prevalent with 39%, or 105 million of adults qualifying, as a group they still have less wealth than the richest, and as a total number are only 16% of the global total.

600x400

China’s middle class account for a 10.7% share of its adults, or some 109 million people, against 92 million in the US. This is however reversed when those above middle class are factored in, expected given while half of all American adults have more than $50,000 in assets, they are just 38% of total adults—comparatively low among advanced economies—Australia has 66% adults qualifying as middle class.

Was the rise of the African middle class oversold as has increasingly been claimed? The numbers at first would suggest so. In 2000, there were 19.1 million middle class members in Africa, this year the number is estimated at 19.9 million, meaning only 800,000 added over 15 years.

In the same period China added 43.3 million people to its middle class ranks, and India 7.7 million.

But disaggregating this reveals a newer phenomenon: between 2000 and 2007 Africa exponentially added 11.5 million to this middle band (China added 102 million), coinciding with the boom years of “Africa Rising”, and doing its part in adding to the massive global expansion of that period. But in just two years, 2007-08, it shed 7.5 million of these. In the eight years since Africa’s middle class has fallen by a further 3.2 million. In Egypt, the middle class is half the size it was in 2000.

The years 2007-08 were the brunt of the global financial crisis, which squeezed the middle class and sent it scrambling for debt. It is yet to recover, and with the continent’s population boom, may take years to do so. It is this that makes China’s current stuttering, or rebalancing depending on where you sit, a real challenge to Africa’s middle class. The continent got fat gorging on trade with China, but the slowing demand for its exports and subsequent roil in global markets have ugly echoes of déjà vu.

On Tuesday, the IMF in its new outlook all but said sub-Saharan Africa’s economy is in decline, as it further cut the region’s growth of 3.75% this year—lower than even in 2009 following the worst of the financial crunch.

The culprits according to the usually grumpy multilateral lender? Plunged commodity prices, higher global market borrowing costs, and the economic slow down in…China.

One lifeline for Africa is to reclaim its growth from China, to which it outsourced its ambitions, but forgot to draft an emergency exit plan. The bulk of new internal growth needs to come from within the continent, and roll out innovative development financing tools such as diaspora bonds, while clamping down on billions in uncollected or lost revenue.

It a nutshell, it is time for Africa to swim, or sink.

Read more from Lee Mwiti

Twitter:@LMAfrican

See also:Charles Onyango-Obbo

Related Posts

2 Comments

  1. The gap between the rich and poor in Africa is widening since we decolonised Africa with the ruling class wanting to be more white than whites. In Zimbabwe we used to have 90% economy under whites and well run. Now we have 10% blacks running 90% of the economy using slave labour and its in a coma.

  2. as Marvin responded I am startled that a single mom can earn $4193 in four weeks on the internet . browse around this website,——————– w­w­w.4­c­y­b­e­r­w­o­r­k­s.c­o­m

Comments are closed.