There has been a lot of talk about the emerging ‘global middle class’, but there is very little consensus on what this actually means. While it is an interesting academic topic, the debate is often overly theoretical. It is probably better to adopt an attitude akin to that displayed by former US Supreme Court Justice Potter Stewart in a case concerning obscenity: “I shall not attempt further to define it … but I know it when I see it.”
In practical terms, most emerging markets have two middle classes. The first is the global middle class, which has more in common with its counterparts in London, New York, Moscow and Mumbai than it does with lower-income communities in its own country. This group should be viewed as part of a growing global middle class, but it forms much of the domestic elite. Though its ranks are growing rapidly, it still only represents around 10% of the population. In many ways this group is less interesting and influential than the second – the expanding domestic middle class. These are the people who have moved beyond subsistence levels and have significant discretionary spending after providing for food and shelter.
Many analysts see this as an Asian or Brazil, Russia, India and China (BRIC) phenomenon, ignoring Africa, where growth of the non-poor segments of the population has been spectacular. Perceptions of Africa are still driven by clichéd images of famine and the public pronouncements of ageing rock stars and the self-interested pleadings of the aid lobby. These are largely misguided, for what has gone unnoticed by most is the change in Africa’s economic performance this decade.
Real GDP growth in sub-Saharan Africa averaged 4.1% between 1997 and 2002. By 2007, it rose to 6.6%. More importantly, incomes are rising and Africans are getting richer at an unprecedented rate: between 1997 and 2002, GDP per capita rose at a rate of 1.8% per annum, reaching 4.6% in 2007. At 1.8% per annum, it would take 39 years for incomes to double; at 4.6%, it takes only 15 years. The credit crunch has slowed but not reversed this trend.
So what has driven this turnaround? A common misconception is that it is just a function of higher commodity prices but, besides oil, commodities are a double-edged sword. While countries gained from higher metal and soft-commodity prices, these were offset by higher import bills for food and energy. At the heart of the improved growth performance is better economic policies. Governments have ceased financing themselves by printing money and have privatised many state enterprises. Economic stability has brought private sector investment from domestic and foreign sources.
In Africa, strong growth and improved productivity has driven a huge increase in the numbers of the domestic middle class. Rising incomes, driven by technology and improved agricultural productivity, have huge implications, as whole cohorts of people move further into the market economy, creating positive feedback loops.
Money to spend on talk-time
It is hard to measure income growth directly, because much of the necessary economic data is unavailable. However, it is possible to see it via proxy indicators related to consumption, and the mobile phone sector presents an especially good example. Despite teenagers’ claims, mobile phones are probably not yet a basic human need. They are though, undoubtedly one of the first non-subsistence purchases made as people progress out of poverty. The International Telecommunications Union says that the number of mobile phone subscribers in Africa has risen from 36.9m in 2002 to 274.5m in 2007. There is strong evidence that this growth rate has been maintained and that there are now more than 300m total subscribers. In April 2009, MTN, the South Africa-based telecom company, announced that it had a subscriber base of 100m.
The adoption of new technologies is creating unexpected business models. The sale of pre-paid phone cards is a ubiquitous feature of almost every crossroad or traffic jam in any African city. In many countries, rather than send cash to families in rural areas, city dwellers can text airtime, which is then redeemed for cash from local brokers. This system has been formalised and commercialised in Kenya through Safaricom’s M-PESA system. M-PESA now has 6.5m customers who send an estimated $10m per day. M-PESA is now adding 11,000 new customers a day. Safaricom and other companies are looking to launch similar operations across the continent.
East Africa is something of a technological laboratory. Facebook launched a Swahili version in June 2009, and Indian offshoring companies are now subcontracting work, such as the completion of US tax returns, to companies in Kenya. In a number of anglophone African countries, companies are setting up call centres aimed the UK market, hoping to benefit from similar time zones and a shared love of Premiership football.
Feeding homegrown markets
The growing purchasing power of the middle classes is also changing attitudes towards business. In Ghana, Blue Skies, a fruit juice manufacturer that had previously exported the majority of its production, is focusing on domestic consumers and has changed its packaging and marketing practices accordingly.
Rapidly rising demand for financial services is a continent-wide phenomenon. In Angola, statistics show that almost 35% of the population now has access to a bank account, up from 4% only four years ago. This is driving demand for consumer credit, especially mortgages. Africa is a long way from having its own sub-prime crisis, but middle class housing is a rapidly growing sector. New types of financial institutions are emerging to service an evolving consumer market.
Rising disposable incomes are driving demand for greater accountability from government and have led to a flourishing indigenous media industry. In Uganda, for example, there are more than 200 private FM radio stations and 40 private TV stations. African consumers are demanding African content, and local artists are stepping in to provide it. Nigeria’s Nollywood film industry is considered to be second only to Bollywood in size. Nigeria’s rap musicians are gaining a pan-African following.
The rise of the middle classes is changing Africa for the better. The quicker the West wakes up to this and moves beyond the tired old stereotypes the better, because China, India, Brazil, Russia and the Gulf States are already investing aggressively.
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