Download The Emerging Middle Class and Its Effect on the

The Emerging Middle Class and Its
Effect on the Nigerian Economy
Figure 1:
Growth of the
Global Middle
Class
Population (millions)
The global middle class is currently made up of $2.3 billion people who spend about
$7 trillion annually; this population size is projected to grow by 47% to reach $4.9
billion. This rise has caused a change in the economy in that business demand
has increased to meet the needs of new consumers. The growth in middle class
has caused a demand for goods such as cosmetics, automobiles, cell phones as well
as an increase in the demand for banking services. The middle class in the US
and other G7 nations has been the key source of demand in the global economy in
the last 50 years; however, the recent growth of the middle class in the developing
world has caused a change in this trend as Asia and Africa also account for a huge
percentage of the global economic growth.
6
5
4
3
2
1
0
2010
2012
2030
Years
According to the African Development Bank (AFDB), the middle class can be
defined in relative or absolute terms. In relative terms, the middle class is defined
as individuals or households that fall between the 20th and 80th percentile of the
consumption distribution or between 0.75 and 1.25 times median per capita income
respectively. Using the absolute approach, the middle class is usually defined as
individuals with an annual income exceeding $3,900 in purchasing power parity (PPP) terms or with daily per capita expenditures between $6 and $10. The
middle class in emerging economies like Asia and Africa have continued to grow.
The middle class now makes up more than 40% of the developing world’s workforce
and is forecast by the International Labour Organization (ILO) to account for more
than 50% by 2017.
The Middle Class in Africa
Many years ago, economies in Latin America, Africa, India and China were stagnant, left billions in poverty and provided few opportunities for the vast majority
of their citizens to build a better life. Fast forward to this decade and the global
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economy has changed. Brazil is a creditor nation; China is the world’s second largest economy; India is a hub of technological innovation; and African nations are
beginning to manage their rich depth of natural resources more effectively. The
result of this is a rising middle class that at the same time will consume more,
become more aware of their impact on the earth and will help spur economic recovery beyond borders of the countries in which they live.
According to a report from the AFDB, the number of middle class Africans has
tripled over the last 30 years to 313 million people or more than 34% of the continent’s population. The reason for the increase in size and purchasing power of the
African middle class includes strong economic growth and a more stable, salaried
job culture away from traditional agricultural activities.
Growth of the
African Middle
Class (1980-2010)
Population (millions)
Figure 2:
350
300
250
200
150
100
50
0
1980
1990
2000
2010
Years
Although the growth in the middle class population has translated to positive outcomes for the continent’s economy, about 60% of this middle class (approximately
180 million people) are barely beyond the poor category. They are in a vulnerable
position and face the constant risk of dropping back into the poor category in the
event of any external shock. The ICP results of 2005 showed that Africa’s middle
class per capita expenditure increased almost two-fold compared to more marginal increases in other regional economies in the developed countries. Consumer
spending by the African middle class reached an estimated $680 billion in annual
expenditures in 2008.
North African countries have the largest concentration of the middle class among
their population. Tunisia has the highest at 89.5% followed by Morocco and Egypt
at 84.6% and 79.7% respectively. In Nigeria, the middle class accounts for about
30% of the population with the majority living in urban centers. This segment of
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Figure 3:
Africa’s
Population
Distribution by
Income
Poor (<$2/day)
19%
Floating ($2-$4/day)
11%
36%
10%
Lower Middle
Class ($4-$10/day)
Upper Middle
Class ($10-$20/day)
24%
High Income (>$20/day)
the population is responsible for a huge proportion of the increased spending on
consumer goods, therefore improving the state of the economy.
The Emerging Middle Class in Nigeria
Nigeria’s new middle class has emerged along with growth of the private sector
in other sectors like banking, telecommunications and services. This middle class
population is largely located in the urban centers, particularly Lagos. The purchasing power of the new middle class in Nigeria can be observed at some shopping
malls that have recently been opened around the country.
The growth in middle class in Nigeria follows the rise in the country’s national
income. For instance, Nigeria’s Gross Domestic Product (GDP) increased five times
from $46 billion in 2000 to $247 billion in 2011, while GDP per capita has increased
to about $1,600. Similarly, the country’s population has increased by about 33%
during the same period rising from 119 million to the current estimated 160 million.
Characteristics of the Middle Class Nigerian
• The middle class tend to reside in bigger and more permanent dwellings
equipped with modern amenities.
• In terms of asset ownership, they are typically associated with the
widespread ownership of major household goods durable goods such as
refrigerators, telephones and automobiles.
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• They are more likely to have salaried jobs or own small businesses.
• They tend not to rely entirely on public health services and seek more
expensive medical care when ill.
• They usually have obtained post-secondary education and are very
interested in their children‘s education.
• They are more geographically concentrated in the urban areas.
• They are more likely to have values aligned with greater market
competition and better governance, greater gender equality, more
investment in higher education, science and technology than those of the
poor.
Factors Driving the Growth of the Middle
Class
• Economic growth
• Growing private sector
• Job opportunities
• High tertiary school attendance
Effects of the Middle Class on the
Nigerian Economy
• Income elasticity of demand greater than one: this means that there will
be an increased demand for luxury goods. For example, an 8% increase
in income might lead to a 10% rise in the demand for new car. The
income elasticity of demand here is +1.25.
• Preference for product differentiation leads value added in branding:
companies trying to perform better than competition will put in more
effort to create differentiated products. This will lead to an increase in
the amount of quality products in the market.
• Increase in positive values: the middle class population is usually a set
of focused individuals who have the following set of values: hard work,
saving culture, etc.
• The middle class populations are usually interested in economic policies
and change in the society. They are more likely influence to economic
development through more active participation in political process,
expressing support for political and economic policies.
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References
A Survey of the Nigerian Middle Class,1004 respondents, Renaissance Capital,
September 2011.
Homi Kharas, The Emerging Middle Class in Developing Countries (OECD Development Centre), Global Development Outlook, 2010.
Maria Gomez Leon, The rise of the middle classes and the economic growth in
historical perspective: The Brazil’s experience in the 20th century, Universidad
Carlos III de Madrid, Department of Economic History and Institutions, 2012
Developing world’s middle class is growing – but so is its ‘near poor’, http://www.
guardian.co.uk/global-development/datablog/2013/jan/30/developing-world-middleclass-growing, April 2013
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Analyst
Chima Onyewuchi
Partner
Chukwuka Monye
[email protected]
Office: +234-1-903-5397
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