“Standard Bank has attempted to fill the knowledge gap by using comprehensive household income data and adopting our own measure of the middle class using South Africa’s LSMs as a framework in order to provide cross-quantifiable reference points for peer African economies,” Standard Bank senior political economist Simon Freemantle, author of the report, said.
The Living Standards Measure (LSM) is a proven methodology used in South Africa to give investors to Africa data on which to base their investment decisions.
The study focused on 11 economies; Angola, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, South Sudan, Sudan, Tanzania, Uganda and Zambia.
The report, entitled ‘Understanding Africa’s middle
class,’ found there are 15 million middle-class households in 11 of sub-Saharan Africa’s top economies this year, up from 4.6 million in 2000 and 2.4 million in 1990 – an increase of 230 percent over 14 years.
The report also found that the combined GDPs of the 11 measured economies had grown tenfold since 2000.
86 percent of the focal economies however remain within the broadly “low income” band despite their economic growth, stressing the nascent maturation of many of Africa’s markets.
The LSM method used in the new report, though suggests that Africa’s middle class is smaller than about 300 million believed in the past when conventional wisdom was used, the report however points out that investors using an unquantifiable assumption might find individuals they had thought were middle class were in fact highly vulnerable to lose that status in any economic shock.
Despite the middle class being smaller than previously thought, the report expects investors to be comforted by the fact that Africa’s middle class is growing strongly and Africa’s income accumulation is far more broad-based than had previously been thought.
Freemantle also noted that the report should make inspectors very optimistic about Africa as it suggests even greater scope for future growth, and indeed the report forecasts acceleration in the accumulation of middle-class households in Africa.
He noted that the previous figure of 300 million middle class Africans as estimated by the African Development Bank’s (AfDB) influential 2011 study was income-based, hence the flaws of the methodology used.
“In fact, such individuals would still be exceptionally vulnerable to various economic shocks, and prone to lose their middle-income status,” Freemantle explains.
South Africa’s LSM method, according to Standard Bank is not income-based but rather uses a wider range of analysis, which made it seem a more reliable choice.
“Looking ahead, an even greater elevation in income growth is anticipated in the next 15 years; between 2014 and 2030, we expect an additional 14 million middle-class households will be added across the 11 focal countries – tripling the current number. Including lower-middle-class households, the overall number swells to over 40 million households by 2030, from around 15 million today,” the report states.
Freemantle noted therefore that “the swifter pace of middle-class growth is critical in its suggestion of a more marked income ascent in the next decade and a half, compared to the period since 2000.”
While there has been a significant individual income lift, it is important to note that majority of individuals in the 11 focal countries still live on or below the poverty line (measured as those with a daily income of $2 or less). This is because income discrepancies are vast among the 11 economies, with almost 86 percent of the 110 million households in the focal group falling within the low-income band. This is however expected to fall to around 75 percent by 2030.
There is therefore a lot of work to do and plenty of scope for measured optimism regarding the size of the middle class in several key sub-Saharan Africa economies.
Freemantle however believes Africa can get more investors interested in its consumer potential by ensuring in-depth research that will provide “reliable and proven data”.
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