The Rising African Middle Class

by Nick Harriss, Founder and Chairman

The stereotypical image in the West of Africa is that of a continent wracked by poverty, where electricity is intermittent, corruption soaks up development funding, political instability and tyrannical governments undermine confidence, and where kidnapping of Westerners is rife.

However these stereotypical views mask a rather different reality.  The Chinese have invested in Africa’s natural resource extraction for more than a decade, but it is only more recently that international investors are waking up to the potential from Africa’s increasing boom in consumer spending, which is set to rise from USD 860 billion in 2008 to USD 1.4 trillion in 2020, according to the McKinsey Global Institute.

Analysts say the rate of return on foreign investment in Africa is higher than in any other developing region. Over the last decade, six of the world’s 10 fastest-growing countries were African.  As a result, Africa now has the fastest-growing middle class in the world. Some 313 million people, 34% of Africa’s population, spend USD 2.20 a day, a 100% rise in less than 20 years, according to the African Development Bank.

The African Development Bank (AfDB) defines the African middle class as those spending between US$2 and US$20 a day. While by the standards of the developed world, this may seem low, the AfDB deems this range appropriate given the cost of living on the African continent.

 

Social and Demographic Factors

There are various social and demographic factors that are driving this new consumerism on the continent. Firstly, as African economies grow, this growth is trickling down, resulting in the people having more disposable income.

Secondly, Africa has a young population, with 62% of the population in under 25 years old. There is, therefore, a guaranteed consumer base for years to come in stark contrast to Europe, for example, which is characterised by a shrinking population. Europe’s workforce, for example, will reduce from 63% in 2010 to 51% in 2050.

Thirdly, there is trend towards urbanization, with African cities growing rapidly. Africa is defined along urban/rural lines and a move from a rural community to the urban area necessarily implies an increase in income, albeit informal.

 

Social Gaps and the Digital Divide

Finally, there is a connection between social gaps and the digital divide. A landmark and pioneering Deloitte study, for example, found that a 10% increase in mobile phone penetration is linked to an increase in a middle/low income country GDP of 1.2% due to the ensuing economic activity that people engage in as a result of being ‘plugged in’ and connected.

In Africa, the mobile phone is a tool that is, both equalizing and empowering and has allowed those marginalized in society to participate in the mainstream economy. Africa became the world’s second most connected region after Asia in late 2011, with 616 million mobile subscribers. With new mobile telephony applications continually being developed in areas such as banking, health, education, agriculture, it is clear that lives will also continue to change qualitatively.

 

 

 

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