Africa’s ailing middle class means a challenged private sector
Africa’s middle class is being challenged like nowhere else in the world. For example, the Nigerian middle class is facing unprecedented inflation, accompanied by the serious devaluation of the naira. The Gini coefficient is deteriorating, creating a further widening of the gap between the rich and the poor.
(WBG)
But, Nigeria isn’t alone. The middle class in South Africa, Ghana, Egypt, Tunisia, Sudan, Malawi, and Sierra Leone, to name a few, are struggling too. Double digit inflation in these countries, especially food inflation, coupled with the devaluation of their national currencies, from between 20 to 90 percent in just 24 months, is depleting the net wealth of their middle class significantly.
If we compare the decline in absolute purchasing power, factoring in devaluation and inflation, the findings are concerning. The middle class in these nations have lost on average 63% of their purchasing power parity in under 24 months.
Poorer African nations, with a more fragile middle class, are also seeing their wealth evaporate quickly. About one-third of Africa’s middle class in LDCs lives on between $6-$20 a day. Nearly, two-thirds of consumers have consumption expenditure of between $2 and $4 a day. With such low daily consumption expenditure, this ‘floating middle class’, in African LDCs, are significantly more vulnerable to falling back below the poverty line.
The recent decline of the middle class across Africa, also points to rising income inequalities across the board. For several countries, as the middle class thins, the concern is having populations that are mostly rich or poor. This does not bode well for either economic, or political stability, in the short term.
The problem of a thinning African middle class, though, is not new. For example, South Africa's middle class has declined since 2017 from 6.1 million individuals to only 2.7 million. Rising inflation, and currency devaluation in South Africa, have just accelerated what was already an acute problem.
To compensate for a drastic loss of wealth, and weakening national currencies, citizens of several African nations are taking extreme actions to preserve what they have left. Demand for gold in a number of African states has increased significantly over the past 18 months. In three African countries, gold is now trading for 10 to 30 percent higher as compared to international prices. Simply put, those adversely affected by the loss of purchasing power, are looking for a safer store of wealth, other than their national currencies.
For several African nations, the hope for accelerating development through middle class consumption is looking more like a panacea. If select African nations cannot preserve what’s left of the wealth of their ailing middle class, the domestic private sector will be the next domino to fall.
