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Africa: glass half full or half empty ?

A blog by Thomas Bonschab, Robert Kappel & Helmut Reisen recently published an article written by Guy.

Guy_Pfeffermann_webThe growth of the African middle-class is one of the great topics of recent discussion. An African Development Bank report found that “The number of middle class Africans has tripled over the last 30 years to 313 million people, or more than 34% of the continent’s population”.

This finding sparked off a whole spate of writings with upbeat titles such as “Africa Rising” by Vijay Mahajan, and various “studies” by consulting companies, such as McKinsey’s “Lions on the Move.” (source)

There is no doubt that the African middle-class has grown in recent decades; the question is how we define “middle-class”. The African Development Bank’s report is using a VERY broad definition. Quoting an article in African Business “those with a daily of consumption $2-$20 (in 2005 purchasing power parity US dollars). The study explicitly stated that it was moving away from the more conventional tendency to define the middle class as those with an annual income greater than $3,900. However, the headline statistic to emerge was accompanied by some significant, if overlooked, small print. The AfDB divided the African middle class into three sub-categories: 60% of the so-called middle class went into the first category Ð individuals with a consumption level of $2-$4 per day. They labelled this group the “floating class”, with individuals within it extremely vulnerable to falling below the poverty line of $2 per day if struck by an unforeseen disaster, expense or unexpected rise in the cost of living. A further 25% came under the second category: the lower middle class who live just above subsistence level, consuming $4-$10 per day. This category of individuals consumes and saves for a limited selection of inexpensive non-essential goods. And just 14% were definable in terms of the third category: upper middle class, with a consumption level of $10-$20 per day. Nonetheless, these caveats have not gained as much publicity as the figure that one in three Africans is middle class.” (source)

More recently, with the fall of most commodity prices, “Afro-pessimists” have regained the limelight. A study published by Pew Research Center this year Ð using the narrower and more internationally accepted definition of middle class (incomes of USD10/day or more) Ð suggests that only 6 per cent of Africa’s population could be classified as middle income. The Pew study implies that while African economies have made great strides in lifting many millions of households out of poverty in the recent past, a far smaller proportion had reached middle-income level.

A 2016 World Bank economic report about Kenya, one of the most economically successful countries in Africa includes a striking chart, which shows how Kenyans earn their living.Most employed Kenyans work in the “informal sector” Ð tiny unregistered “firms” typically employing only one person. Wage employment, which includes what most people would call the “middle class” is small and growing only slowly. Furthermore government employees constitute more than half of all wage employment, and middle-class growth is therefore constrained by government finances.

In sum, as is true almost everywhere, the glass is both half empty and half full.

Guy Pfeffermann is the Founder and CEO of the Global Business School Network