Her parents look at the price and hesitate for a few seconds, but five-year-old Tomiwa Madukwe will not settle for any other sweets. Soon, the 379 naira ($2.4) bag of pink and white treats has been placed in the family shopping trolley along with vegetables, meats, cleaning products and beers on sale at the Shoprite mall in Abuja, Nigeria’s capital.
The Madukwe family is the dream of retailers in Africa: a couple with a young family and money to spend – a new middle class of consumers in the continent’slargest economy and most populous country. They and others like them are why South Africa’s Shoprite, the continent’s largest grocer, opened its first outlet in Abuja two years ago. It is also why consumer goods companies such as Nestlé, Heineken, SABMiller and Unilever are pouring millions of dollars into the country to expand production.
And yet Nigeria, where more than 60 per cent of its 170m population still lives in extreme poverty, is also a textbook example of the fragility of the emerging middle class in Africa. Financial Times research published this week has highlighted how a billion people in the developing world are at risk of slipping out of the nascent middle class and back into poverty if economic growth slows.
Like the Madukwes, African’s new middle class faces high living costs – particularly in areas such as electricity, health and education. Employment can also be precarious. “They are vulnerable to many shocks and could revert into poverty very easily – for example because of a death in the family,” says Mthuli Ncube, chief economist at the African Development Bank. A move into Africa’s new middle class is not one-way, “it is a revolving door”, he adds.
Millions of people in emerging markets have over the past 30 years moved from poverty into the consuming middle classes. But with growth slowing, their fates are now one of the biggest challenges confronting governments
The AfDB estimates that Africa’s middle class, which numbered 115m in 1980, has grown to 326m in the past three and a half decades.
But less than 14 per cent – about 44m – have firmly achieved that status, earning $10-$20 a day. The rest conform to what the AfDB calls the “floating class”, taking home $2-$4 a day and living barely above the poverty line, and the “lower middle”, making $4-$10 a day.
Despite the rapid growth, Africa still has the smallest middle class as a share of total population of all emerging regions. According to the AfDB, the middle class accounts for 33 per cent of the population in the region, compared with 56 per cent in developing Asia and 77 per cent of Latin America.
Nevertheless, Africa’s growing band of middle-class consumers is why retailers such as Shoprite now has more than 150 outlets in 16 African countries outside South Africa. For many multinationals – as well as local entrepreneurs – African families emerging from poverty and into the consuming middle class represents one of the biggest opportunities in global business.
The proposition is simple: companies want to sell to them and build shopping habits now for the decades of growth to come. It is a model that has worked successfully in other emerging economies, from Thailand to Colombia.
The template has an added advantage in Africa, according to Deloitte, the consultancy. In a report titled The Rise and Rise of the African Middle Class, it notes the continent’s disproportionately young population – more than 60 per cent of Africans are under the age of 25. “There is, therefore, a guaranteed consumer base for years to come,” Deloitte explains.
Until now, the model has worked extremely well. The virtuous circle of economic growth and improved governance in many countries – supported by high commodities prices – have heralded a new chapter for the continent, which many have enthusiastically called “Africa Rising”.
Across the region, a new wave of consumerism has emerged. Shoprite sold more cans of Red Bull, the energy drink, in five shops in Angola last year than in all its 382 outlets in South Africa, for example.
But after a decade of strong growth and huge investments, the “Africa Rising” theme is starting to wear thin. Some consumer goods companies are beginning to sound more cautious. In Nigeria, the most recent results for Unilever, the maker of Flora margarine and Dove shampoo, and Nestlé, the world’s largest food group by sales, showed a significant slowdown in turnover and profit.
Industry executives and officials offer different reasons for the recent downtrend. Their explanations include so-called jobless growth – growth in sectors generating little employment, such as natural resources – increased competition and higher costs. But there is agreement that rising inequality is playing a significant role in keeping large chunks of the middle class fragile while fattening the richest of the rich.
“If you talk to the $2-$10 a day middle class, it is like there is an economic crisis – but meanwhile, the economy is booming,” says Andrew Alli, chief executive of Africa Finance Corporation, a Lagos-based development lender. “I think inequality is the answer.”
In Africa, rising inequality is slowing the number of poor people that every year graduate into the ranks of the middle class. While economic growth in the continent has averaged nearly 6 per cent over the past decade, the upper middle class – those earning $10-$20 per day – has grown at a rate of less than 2 per cent.
As Yvonne Ike, chief executive for west Africa at Renaissance Capital, an emerging markets specialist, puts it: “Sexy economic growth numbers do not directly translate into real economic development.”
Unless governments tackle inequality and jobless growth in Africa, the new members of the middle class will remain under threat. And with it, the chance that one day Tomiwa Madukwe will be able to afford something more than marshmallows for her children.