The middle class in Africa is growing. That much we know. But depending on who you speak to you and how you measure it, you can get a very different picture of its size. It makes a huge difference, for example, if you decide that people with incomes above $2 or $4 a day are part of the middle class.
Ben Longman, managing director of African market intelligence company Trendtype, unpicks the true size of the middle class, how to understand it and track its growth.
1. Decide what you mean by ‘middle class’. The African Development Bank includes people who earn above $2 a day within its middle class. On that basis, 34% of Africa’s 1.1 billion people are middle class. But are they really middle class? We prefer to use the term ‘consumer class’ to make sense of these new consumers. The key point is to use a consumer segmentation that fits the products and services you sell.
2. Stop looking just at income. Most sub-Saharan African countries have large informal economies in which people are reluctant to declare their real incomes to government agencies. Official income data triangulates the measured size of the economy, income inequality and the size of the population. If any of those data points are wrong or outdated, the size of the middle class will shift dramatically.
3. Look at lifestyle and living standards. Some 791 million Africans live in homes with at least one mobile phone, and 495 million in homes with a television. About 311 million have a refrigerator and 114 million live in homes with a car. It is estimated 38 million Nigerians have incomes above $2 a day. Almost 90 million Nigerians live in homes with a television. Living standards provide a much clearer indication how the consumer market is growing.
4. Living standards predict income changes. It seems counterintuitive, but the reality is that it is more accurate to track changes in lifestyle and living standards, than to see how economic growth filters down to consumer income at the household level. We are going to see more country economic data get radically revised upwards, as both Nigeria and Kenya have done. If you pay attention to living standards, you can actually see where this is going to happen.
5. It is not just rising income driving this change in living standards. Electrification – particularly in rural areas – is transforming households. In Tanzania and Mozambique, the number of households with electricity has more than doubled in the past five years. The rise of online retail and the growing supermarket sector are transforming access to goods and services. Rapid urbanisation is bringing more consumers within reach. In other words, it is becoming cheaper and easier to join the middle class.
6. Living standards and lifestyles keep changing. Old data can be particularly misleading where the changes are most dramatic. The number of households with a mobile phone grew from just under 6 million in 2000 and will reach 200 million towards the end of 2016. Many aspects of the emerging consumer economy which will have a profound change on living standards and lifestyles are still in their infancy: internet connectivity, mobile payments, access to clean water in the home, uptake of a wide range of consumer appliances and assets, and the formalisation of retail.
7. Be wary of forecasts. It goes without saying that if the current measures of the middle class are poor, then the forecasts are unlikely to be much better. We do know, for example, that tertiary education rates today are a good indicator of where the middle class will grow tomorrow – not only because it creates a skilled workforce but because it is often indicative of the institutions and policy that foster growth and stability. Quality of governance in areas such as poverty reduction, infrastructure building and attracting foreign investment will continue to play a major role in the development of the middle class. But make sure the forecasts you use, take account of the environment in which the middle class is supposed to take hold.