JOHANNESBURG, South-Africa, August
19, 2014/ -- Africa has experienced substantial growth in its middle
class over the past 14 years, according to a study by Standard Bank (http://www.standardbank.com).
The report, entitled ‘Understanding
Africa’s middle class,’ found there are 15 million middle-class households
in 11 of sub-Saharan Africa’s top economies this year, up from 4.6 million in
2000 and 2.4 million in 1990 - an increase of 230% over 14 years. However, of
the total number of households across these focal economies, 86% of them remain
within the broadly “low income” band, emphasizing the nascent maturation of
many of the continent’s markets.
The report also found that the
combined GDPs of the 11 measured economies had grown tenfold since 2000.
The study uses a proven methodology
widely employed in South Africa. The report, based on the Living Standards
Measure (LSM), gives investors to Africa data on which to base their investment
decisions.
In the past, the conventional wisdom
was that as many as 300 million Africans are categorised as ‘middle class’. The
report points out that investors using an unquantifiable assumption might find
individuals they had thought were middle class were in fact highly vulnerable
to lose that status in any economic shock.
The report suggests that while the
middle class may be smaller than previously thought, two factors should give
investors greater comfort: by any methodology Africa’s middle class is growing
strongly; and Africa’s income accumulation is far more broad-based than had
previously been thought.
Standard Bank senior political
economist Simon Freemantle, author of the report, says the new report is cause
for optimism among investors as it suggests even greater scope for future
growth, and indeed the report forecasts acceleration in the accumulation of
middle-class households in Africa.
Commenting on the lower than
anticipated total number of middle class households, Freemantle says any view
“concerning the undoubted ongoing improvement in Africa’s economic performance
has to be tempered with the reality that the level of this growth and the nominal
size of the continent’s middle class had not until now been adequately
measured”.
He argues the previous figure of 300
million ‘middle class’ Africans was viewed as a best-estimate that has now been
confirmed as to trend if not as to the total aggregate. The report cites the
African Development Bank’s (AfDB) influential 2011 study, ‘The Middle of the
Pyramid: Dynamics of the Middle Class in Africa’, which by its methodology
attached middle class status to individuals earning just USD4 to USD20 a day,
and even a “floating class” of individual earning USD2 to USD4 a day, thereby
categorising fully one-third of Africa’s people (over 300 million of them) as
‘middle class’.
“In fact, such individuals would
still be exceptionally vulnerable to various economic shocks, and prone to lose
their middle-income status,” explains Freemantle.
South Africa’s LSM measure as a
methodology is not income-based but rather uses a wider range of analysis. The
report covers 11 selected sub-Saharan African countries which combined account
for half Africa’s total GDP (75% if excluding South Africa) and half its
population. The methodology identified LSM5 and above as middle class and
categorises household income into four distinct income bands: low income; lower
middle class; middle class and upper middle class.
“Standard Bank has attempted to fill
the knowledge gap by using comprehensive household income data and adopting our
own measure of the middle class using South Africa’s LSMs as a framework in
order to provide cross-quantifiable reference points for peer African
economies.” The 11 focus economies are: Angola, Ethiopia, Ghana, Kenya,
Mozambique, Nigeria, South Sudan, Sudan, Tanzania, Uganda and Zambia.
This methodology found there was an
undeniable swelling of Africa’s middle class irrespective of which methodology
was used. “Looking ahead, an even greater elevation in income growth is
anticipated in the next 15 years; between 2014 and 2030, we expect an
additional 14 million middle-class households will be added across the 11 focal
countries – tripling the current number. Including lower-middle-class
households, the overall number swells to over 40 million households by 2030,
from around 15 million today,” the report states.
Furthermore, while figures for 1990,
2000 and 2014 all contain more lower-middle class than middle class households,
by 2030 it is expected that “there will be notably more middle-class households
than those in the lower-middle-class bracket (19.2 million versus 22 million)”
Freemantle says: “The swifter pace
of middle-class growth is critical in its suggestion of a more marked income
ascent in the next decade and a half, compared to the period since 2000.”
As a caution, the report states:
“Though there has been a meaningful individual lift in income, it is clear that
a substantial majority of individuals in most countries we looked at still live
on or below the poverty line (measured as those with a daily income of USD2 or
less).” Income discrepancies are vast among the 11 economies, with almost 86%
of the 110 million households in the focal grouping falling within the
low-income band. This is expected to fall to around 75% by 2030.
“In conclusion, while the scale of
Africa’s middle class ascent has, we believe, been somewhat exaggerated in line
with the at times breathless ‘Africa Rising’ narrative, there is still plenty
of scope for measured optimism regarding the size of the middle class in
several key SSA [Sub-Saharan Africa] economies. Reliable and proven data should
if anything spur more interest in the continent’s consumer potential by adding
depth to what was previously conjecture,” says Freemantle.
Na Mwanaharakati.
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