The making of the middle class in Africa
Robust economic growth over the last 15 years has led to visible changes across Africa. Visitors to cities on the continent cannot help but notice the emerging African middle class. Defined as those earning between US$2 and $20 a day in 2010, Africa’s middle class is expected to grow from 355m (34% of Africa’s population) to 1.1bn (42% of the population) in 2060.
To be sure, about 60% of them – approximately 180m people – remain barely out of the poor category. They constitute the “floating” class, earning between $2 and $4 a day. They are in a vulnerable position, constantly at risk of dropping back into poverty in the event of any unexpected shocks, such as the loss of income and the death of the head of household.
Not only is Africa’s middle class crucial for economic growth, but it is essential for the growth of democracy and will play a key role in rebalancing the African economy. Consumer spending by the middle class reached an estimated $680bn in 2008 – or nearly a quarter of Africa’s GDP. By 2030 this figure will likely reach $2.2tr and Africa will comprise about 3% of worldwide consumption.
Despite a reputation for thrift, middle class households do allocate part of the household budget to leisure and entertainment. Our analysis shows that middle class households are likely to spend more on private education and health, as well as on household assets such as televisions and refrigerators. In addition to being better off in material terms, the middle class is in general both more satisfied and more optimistic about the future than their poorer compatriots.
Education and spatial mobility are often key factors in procuring a middle class job. They allow people to move into a new sector or industry with higher wage rates, or to relocate to an urban agglomeration where there are greater job opportunities. The region has witnessed strong expansion in manufacturing and service industries such as telecommunications and finance in recent years. This is expected to translate into sustained growth of middle class jobs in the future. African cities will continue to expand at a rapid pace, creating the dynamic environments conducive to innovation and higher labour productivity. Nevertheless, despite these positive developments, the informal sector will continue to dominate the African labour market in the medium term, as the growth of steady, well-paid employment is starting from such a low level.
The growth of the middle class represents a huge challenge for service provision. Large investments have to be funded, yet at the same time the most vulnerable in society need to be protected from relapsing into poverty. The middle class enjoys higher purchasing power than the poor, which means it is better placed to help fund improvements to infrastructure. However, the preponderance of the “floating class” (those earning just $2-$4 per day) suggests that user charges may need to be kept at a modest and affordable level.
The challenge is how to bridge the huge infrastructure funding gap. Africa requires between $19bn and $20bn per year to achieve full coverage in electricity by the year 2019. Investment needs for access to improved water total $16bn per year, while requirements for improved sanitation amount to $17bn-$18bn per year.
Ultimately, the emergence of the African middle class can only be sustained if the continent puts in place strategies that expand prosperity for all. Without such measures, which include expanding opportunities for technical training and job creation, the growth of the middle class is likely to be undermined by social friction. Policies that foster improved infrastructure, sustained and shared growth, enhanced human resources, private sector participation, and improved accountability and governance also spur the growth of the middle class. Social policies can accelerate this emerging trend, for example through pro-poor spending on education and health. Over the next 20 years, with the appropriate policies on human capital development and job generation, Africa can transform its social fabric, as more and more of its population exit out of poverty to join the ranks of the middle class.
Mthuli Ncube is the chief economist and vice president of the African Development Bank.