Tuesday, September 2, 2014

How to grow Africa's middle class


After nearly a decade of uninterrupted economic expansion, governments, investors and market analysts are hysterical with excitement about Africa’s emerging consumer class.

According to the 2013 Annual Development Effectiveness Report of the African Development Bank (AfDB) Africa’s middle class, which earned between $2 and $20 a day had reached 350 million. The proportion of the population living below the poverty line dropped from 51 percent in 2005 to 39 percent in 2012.

However, this discovery of Africa’s trove of middle class was greeted with both optimism and caution. The mushrooming malls persuaded the optimists while caution was motivated by the findings of the Global Pacific, which estimated that Africa’s middle class was less than five percent, with a majority living in countries such as South Africa, Egypt, Botswana, Nigeria, Algeria, Tunisia, Morocco. Tiny pockets of Africa’s middle class also live in Ethiopia, Ghana, Kenya, Senegal and Uganda.

In March this year, I argued in this column that the growth and size of Africa’s middle class was not adequately measured. A new report, Understanding Africa’s middle class, by Standard Bank now shows that AfDB’s estimates of Africa’s middle class were exaggerated. The study analyzed 11 of the biggest economies in the region, which account for about half of sub-Saharan Africa’s population and GDP.

The economies of these 11 countries have expanded tenfold since the year 2000. The 11 countries in the study are Angola, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, South Sudan, Sudan, Tanzania, Uganda and Zambia. Today the combined GDP is estimated at $1 trillion– about half of Africa’s combined GDP.

Using a more robust definition, globally valid definition of “middle class”, the report concluded that Africa’s lower middle class and middle-class comprised individuals consuming from $15 to $115 a day. This is in dramatic contrast with the $2 to $20 definition of the middle class by AfDB in 2011. However, the Standard Bank report, like the AfDB report, shows dramatic growth in Africa’s middle class.

On the positive side, the ascent of Africa’s middle class signifies that Africa’s prosperity, which has been in under the tight grip of politically connected elite is percolating, and finding its way into broader classes of society. This also implies that a socio-economic class is emerging, which could buttress Africa’s fledgling democracies.

But here is what we must to pay attention to. Both the richer and poorer classes have grown. This means that the distributions are unchanged. About 86 percent of households in the 11 countries studied fall within the low-income band. These households are vulnerable, highly marginalized and often unable to allocate income or earnings to non-food expenditure.

Moreover, the scale of income and wealth inequality in our societies is both unprecedented and dangerous. In Kenya for example, 10 percent of the wealthiest households control more than 42 percent of the total income, while the poorest 10 percent control less than 1 percent.  In his Apostolic Exhortation in November 2013, Pope Francis wrote; “Some people continue to defend trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world”.

Africa’s tide of growth will not, inevitably, lift all the boats. What is needed to grow the ranks of Africa’s middle class is targeted policy, to increase agricultural productivity, expand access to nutrition for children, water and sanitation high quality education. I submit that agriculture is the stone the builders of African economies forgot. For as long as more than 75 percent of Africans are employed in small family farms and trapped in collapsing rural economies, Africa’s middle class will remain small and brittle.

The IMF and the World Bank have attributed Africa’s ascent and economic growth to prudent macro-economic management. I argue that sound fiscal policies alone will not deliver what Africa sorely needs: equitable and transformative economic growth. To reduce poverty and grow the middle class, Africa must develop pro-poor policies targeting public investment in agriculture and rural development. A Vibrant agriculture-led rural economy will reduce rural poverty, undergird political stability and provide cheap, reliable food supply for urban-based industrial workers. 

Poverty reduction and the rise of Africa’s middle class will depend solely on growth models that are accompanied by structural transformation where agriculture becomes more efficient and excess rural labor shifts from primary production to higher productivity sectors in agricultural value addition, manufacturing and services. 

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