African continent on the rise – but slowly

How large and how fast Africa's middle class is growing is a topic of constant debate among economists.

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Africa’s middle class is a strange creature that defies easy description.

How large and how fast it is growing is a topic of constant debate among economists. Between 2001 and 2011 more than 700 million of the continent’s 1.1 billion people escaped poverty, according to the US-based Pew Research Center. Only about 6 per cent of them meet the basic entry level for middle class though, an income of between US$10 to $20 per day, Pew said.

Others set a lower threshold – the African Development Bank uses $2 as the benchmark for middle-class income, and says almost 500 million people qualify. This is probably a stretch, and most studies point towards a $10 baseline, which puts around 40 million people in the middle-class category.

This is a comedown from the “Africa rising” narrative that ran through much of the commodity supercycle that saw wild predictions of a mass entrance to higher economic ranks, by among others The Economist, declaring it “The hopeful continent” in 2011. Still, while small, the continent’s middle class is growing in what appears to be a sustainable manner.

A report by the UN Commission on Africa a year ago noted that economic growth was expected to remain around 5 per cent for most countries, on a par with many Asian economies. Some countries such as Ethiopia are still managing 10 per cent. The UN says the figures themselves are less significant than what is driving them; growth is largely fuelled not by raw material exports but by domestic consumption. In other words Africans buying and selling goods and services to and from each other. The same report shows foreign direct investment between African states is growing at more than 30 per cent a year.

This is being driven by tourism and hotel construction, mobile telecommunications, financial services and agriculture. Just this year Nigeria became self sufficient in cement production, ending years of being dependent on imports.

According to the Harvard Business Review (HBR), Africa now has 400 companies worth more than US$1 billion, with a combined annual income of $1.2 trillion. This could easily increase as African manufacturing worth $500bn a year now could double to $930bn in 2025 on local demand alone, says HBR.

So, the middle-class march was overblown to an extent and the true picture of its size is now tempered with the reality that most of Africa’s people remain poor and powerless.

Yet the middle class remains resilient and is probably African countries’ best shot at improving their lot. The shopping malls in Accra, Nairobi and Johannesburg are signs that Africa is indeed rising – just not so fast.

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