Africa\’s Growing Middle Class (!?!)

It\’s easy to compile a list of reports dating back several decades about how the economies of sub-Saharan Africa are really truly about to take off and grow this time. But over the last 10 years or so, there is some evidence that the predictions may at last be coming true. I posted a few months back about the modest but real increases in foreign direct investment to Africa and exports from Africa in recent years. Last May, the African Development Bank put out a report in May called \”The Middle of the Pyramid: Dynamics of the Middle Class in Africa.\”

In developing economies, the \”middle class\” is usually take to run from $2/day to $20/day in consumption per person. By that standard, here\’s what Africa\’s distribution of income looked like in 2010:

The African Development Bank reports: \”Recent estimates put the size of the middle class in the region in the neighborhood of 300 to 500 million people, representing the population that is between Africa\’s vast poor and the continent\’s few elite. Africa’s emerging middle class comprises roughly the size of the middle class in India or China.\”

The increase in the middle class has been substantial in the last few decades.  The middle class was 26.2% of the population in 1980, 27% in 1990, 27.2% in 2000–and then 34.3% in 2010. To be sure, a lot of this growth was in the lowest level of the middle class, those consuming $2-$4/day on a per person basis. If one looks only at the middle class from $4-$20/day, their share of the population actually declines a bit from 1980 to 2010. The progress here is obviously slow, but nonetheless seems real.

The middle class is important for a number of reasons. It creates a local market that didn\’t exist before for many goods and services, and can have a positive effect on governance. The ADB reports: 

\”Strong economic growth in the past two decades has helped reduce poverty in Africa and increased the size of the middle class. Although the growth in Africa’s middle class has not been very robust, it has nonetheless been noticeable and contributed to increased domestic consumption in many African countries, a development that could help to foster private sector growth in African countries. Sales of refrigerators, television sets, mobile phones, motors and automobiles have surged in virtually every country in recent years. Possession of cars and motor cycles in Ghana, for example, has increased by 81% since 2006. As such, the middle class is helping to foster private sector growth in Africa as they offer a key source of effective demand for goods and services supplied by private sector entities.

The middle class is also helping to improve accountability in public services through more vocal demands for better services. The middle class is better educated, better informed and has greater awareness of human rights. It is the main source of the leadership and activism that create and operate many of the nongovernmental organizations that push for greater accountability and better governance in public affairs, a position that augurs well for creating a suitable environment for growth and development.\”

And here\’s one other statistic that jumped out at me: \”The number of internet users [in Africa], which can be used as a proxy for middle class lifestyles, has increased from about 4.5 million people in 2000 to 80.6 million people in 2008.\” 

Banerjee and Duflo on microcredit and repayment

The Philanthropy Action website has an extended interview with Abhijit Banerjee and Esther Duflo. \”Over the course of the interview we discuss microcredit, microenterprise funding and growth, labor markets in developing and developed countries, the evidence for focusing on women and girls with aid programs, the debate over RCTs [randomized controlled trials] and how they think about their own impact on changing the world.\” I found their thoughts about the crisis in microfinance, and how microfinance institutions get 90% repayment rates, to be especially provocative.

Esther Duflo: The Grameen Bank has been around for many many years and their loans are still very very small. Just forget about subtle impact evaluation or whatever; it’s been staring us in the face that these businesses are not growing, and the vast majority of people are not growing out of poverty or anything like that. If we had not been obsessed by the romantic idea of microcredit then maybe there would have been an earlier realizing of what microcredit does and what it doesn’t do. I think people are coming to that, to a small extent maybe because of our work stirring the pot. To be honest, it maybe would have happened anyway. But there’s been a lot of delay given that the facts were pretty obvious.
Abhijit Banerjee: I just gave a talk at the World Bank on exactly this topic. The crisis in microfinance is a result of the 3 C’s: credulity, cupidity and corruption. The politicians were corrupt, we were all credulous, and the microfinance people were greedy. Put them together and you get the crisis. Our credulity was significant. Somehow we believed that all repayment happens in microfinance due to some magic which made no economic sense. We knew it didn’t make economic sense. And then suddenly one day wake up to the fact that the actual loan officers would come to your house, maybe they don’t beat you up, but they do harass you.
You don’t need to do an evaluation to start asking questions. You just need to think about it for 10 minutes. These are desperate people with lots of financial demands. People in the family are sick, people lose jobs, the daughter needs to get married.
ED: But they repay anyway. Someone must be very convincing.
AB: But 90 percent repay. What is going on? How could we believe this was because of some tweaking of economic incentives? As economists I think we were basically inept in thinking about it or we would not have believed it. The core fact was staring us in the face. There was some amount of—I won’t say coercion, I think they are careful not to actually threaten—but there’s a lot of harassment. They come to your house, they call up your friends. I don’t think there’s anything wrong with it. It’s a moneylending business, it’s risky. But if the rest of the world thinks these are awful things to do, then you can’t expect better than a 90% repayment. And we didn’t look at this, we evaded the gaze of these facts that were looking back at us.