Use data on Africa’s growing middle class with a toothpick

Don’t substitute judgment with statistics: Paul Omondi of Milward Brown argued that statistics should not be a substitute for judgment. This is a good reminder of a book that is dedicated to the subject: How to Lie with Statistics.

Mr Omondi gave an example of the Africa Development Bank (AfDB) which put a monthly income of Sh10,000 for the middle class, resulting in a population of more than 40 per cent. The Kenya National Bureau of Statistics (KNBS) cuts off the income at Sh20,000 putting the estimate at 20 per cent while the Standard Bank would put the cut off at Sh60,000, reducing the Kenyan middle class population to four per cent.

Based on KNBS data the average wage per employee has grown from Sh33,527 in 2010 for the public sector to Sh49,740 in 2014 and Sh32,714 for the private sector to Sh44,807 in the period.

When adjusted for inflation the growth in the wage per employee is five per cent for the public sector and three per cent decline for private sector. This means that the purchasing power of salaried workers has remained flat or declined in the last four years.

Note that the public sector employees have a small advantage over the private sector ones. This means is that depending on your intentions you need to apply judgment on how you define the middle class.

If you are looking at the mortgage market, you may want to use the Standard Bank basis to increase the cut off.

If you are looking at mobile phones, mass market or development the AfDB or KNBS basis would work depending on the segment you want to target. Most importantly, always have in mind that the basis of your definition is a judgment call.

The floating middle class can easily fall back to poverty.

If real wages are not growing and in some cases are declining those at the bottom of the middle class can easily fall back into poverty. This bottom class is referred to as the floating middle class and is based on those who are just above the spending of $2 per day.

The other middle class segments include lower, middle and upper. With the dollar appreciating against the local currencies by more than 20 per cent recently, those at the borderline will fall out of the middle class.

A good example is Ethiopia, one of the fastest growing economies in the world and the second most populous country in Africa. Mikreab Aduguna, a researcher from Ethiopia, highlighted the growth story, which included the growing urban culture, rapidly improving education penetration and mega projects such as the great Ethiopian Renaissance Dam that will produce 6,000 megawatts of power when complete.

The number of breweries has doubled in a few years with increasing per capita alcohol consumption. He highlighted an Ethiopian middle class population at 30 per cent, two thirds of which is in the floating class.

Anyone using these numbers should be aware of the floating class and not look at the whole middle class as one thing. It is okay to celebrate the good story but spend time and intellectual capital when investing on the promise.

The writer is the marketing director of SBO Research. E-mail: [email protected], Twitter @bngahu