Africa's emerging middle class drives growth and democracy

By Pascal Fletcher

JOHANNESBURG (Reuters) - After years of headlines about Africa's poverty, its emerging middle class is now grabbing attention as a driver of growth and democracy and an expanding pool of consumers for market-hungry retailers.

Consumer demand is a motor of Africa's economic and investment surge, and analysts see middle class buyers with swelling disposable income as fuelling this boom from South Africa to Nigeria and Kenya.

In its Africa Pulse report last month, the World Bank said consumer spending accounted for more than 60 percent of Sub-Saharan Africa's buoyant economic growth, which it forecast would accelerate to more than 5 percent over the next three years, far outpacing the global average.

"It's probably the fastest growing consumer class in the world, as a region," said Michael Lalor, director of Ernst & Young's Africa Business Center in Johannesburg.

From mobile phones, cars, food, and clothes to financial services and entertainment, multinational companies are homing in on lucrative new markets as millions of Africans aspire to claw their way out of still widespread poverty.

"The poor don't drive demand in an economy, it's the middle class that drive demand in an economy," African Development Bank Chief Economist Mthuli Ncube told Reuters.

"Reducing poverty means creating a middle class. Sometimes people think pushing the middle class means forgetting about poverty, but it's the other side of the coin," he added.

Global demand for African commodities, driven by China, has also boosted economic growth along with strong investment in productive industries and infrastructure. The World Bank forecast foreign direct investment in Sub-Saharan Africa will reach $54 billion by 2015, up from $37.7 billion in 2012.

At the same time, a greater number of African countries are achieving relative stability in politics and economic policy, allowing the middle class to emerge.

Accurately quantifying this African middle class has become an obsession for institutions such as the African Development Bank (AfDB) and World Bank, as well as consultancies advising corporate clients seeking an edge in this booming continent.

But this is a challenging task in a very diverse region - still the least developed on the planet - where reliable data is patchy and whose more than 50 economies range from regional powerhouses South Africa and Nigeria to U.N. Development Index laggards such as Niger and Mozambique.

A CONSUMING CLASS

"There are elastic definitions ... The middle class is very different in Kenya, for example, where you need far less disposable income than you might need in the United States," said Ernst & Young's Lalor.

One of the most frequently quoted - and debated - studies is a 2011 report by the African Development Bank. This said that, based on a daily per capita consumption definition of $2-20, Africa's middle class had risen by 2010 to 34 percent of its population - or nearly 350 million people - from about 126 million or 27 percent in 1980.

Given that $2 a day or below is widely accepted globally as a poverty indicator, many economists see the AfDB's middle class range, as cited in its 2011 report, as too broad and optimistic.

Standard Bank economist Simon Freemantle says other studies indicate a more "African-appropriate" measure of middle class level income of between $15 and $20 a day. "There, Africa's middle class would be closer to 120 million, out of a population of just over a billion, so roughly 10 percent," he said.

Citigroup's Africa Economist David Cowan preferred not to use the term "middle class" at all in relation to Africa. "I don't believe there's an African middle class," he said, when compared with Europe or Asia.

Cowan would rather speak of a rapidly expanding "huge consuming class", with ideally $5,000-7,000 of disposable income a year ($14-19 a day).

"That's a level at which people can really make consumer purchases ... middle class in my mind should able to afford a washing machine and go out and buy a motorbike," he said.

"DRIVERS OF DEMOCRACY"

Few doubted that the emerging middle class was an important group for defining Africa's economic and political course.

As keen users of mobile phones and the Internet, including social media networks, they were plugged into the digital world and international news and therefore had a role as opinion makers and agents of reform and change.

"The mobile phone in Africa is creating a politically conscious class," said Cowan, citing Kenya's election in March.

Many analysts believe digital media played a part there in keeping tribal tensions in check during the vote and allowing a generally peaceful poll which averted a repeat of post-election violence that killed more than 1,200 people in 2007/2008.

Middle class voters are seen more likely to vote according to policies and issues rather than automatic or traditional allegiances to any party or ethnic group.

AfDB's Ncube believes the better-educated are supporting a perceived and widening trend towards more democratic maturity and better governance on the continent.

"They are your enlightened voters, they will support policies, and not just an affiliation emotionally," he said. "They are drivers of democracy."

Reflecting change in post-apartheid South Africa, recent research by the University of Cape Town Unilever Institute of Strategic Marketing shows the black middle class there has more than doubled in eight years to 4.2 million in 2012, and its annual spending has overtaken its white counterpart group.

"The growth in this country, both economically and certainly in terms of spending power, comes from the black middle class," Unilever Institute Director John Simpson told Reuters.

He said the ANC government, which had long focused on the poor masses as its core voting base, was now being forced to pay more attention to the black middle class - which it has also helped create through affirmative action policies.

But even if one accepts the AfDB's broadly inclusive figure of around 300 million in the African middle class, chief economist Ncube says at least half these people do not enjoy real economic security.

"That 150 million between $2-4 a day, it's very vulnerable, it could slip back any time into poverty," he said.

Political and economic shocks, such as conflict, unrest or upheaval, could also have a heavy impact on the livelihoods of lower-earning middle class members, Ncube added.

"Naturally, the closer you are to $4 (a day) ... even just a small lift in food prices, and that group immediately becomes vulnerable," said Freemantle.

(Editing by Ed Stoddard and David Stamp)

Source: http://news.yahoo.com/africas-emerging-middle-class-drives-growth-democracy-102441663.html

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