WASHINGTON – In a recent article focusing on why the African middle class is still rather small, The Economist points out that rosy expectations about more broad-based prosperity failed to materialize. Indeed, while sub-Saharan African economies have experienced significant economic growth in recent years, this is simply not enough to expand the ranks of a new middle class.
Scaling back
The news is not entirely negative. There has been some expansion. But far less than what many had predicted. For example, the article points out that Shoprite Holdings, a major South African retailer, just a few years ago announced that it planned to open anywhere between 600 and 800 stores in Nigeria, Africa’s most populous country, (173 million).
Well, Shoprite ended opening up only 12 stores. You see the difference. 600 stores assume a large, reasonably affluent middle class that can afford supermarket shopping, as opposed to low income buyers who do their shopping with street vendors who barely get by with a tiny volume of sales. A total of 12 stores in a country of 173 million indicates that this scenario of more widespread prosperity failed to materialize. Most Nigerians are still poor.
The commodities boom is over
In truth, many African economies are growing. But in recent years this growth was the result of the global commodity prices boom triggered in large measure by Chinese unprecedented demand. This commodities explosion proved to be a short-lived, exceptional phenomenon. Now that China’s artificial boom is over, demand for Africa’s raw materials has declined. And this means lower revenues and stagnant standards of living.
Beyond this, you have to add Africa’s chronic malaise, a mixture of inefficiency, cronyism, lack of accountability, and corruption. This malaise in many cases translates into large income inequalities. Those in power and the well connected benefit in a disproportionate way from whatever growth is produced. Most of the others get little. Hence a small middle class.
Fine. We get all this. However, while good governance matters, the real reason why the middle class is not expanding in Africa is that the economic base is still very narrow.
Lack of electricity is the number one problem
And by far the main reason for this is lack of electricity. Yes, lack of electricity. We can talk all we want about democracy, transparency, the need to fight corruption while creating systems that improve accountability. However, the fact is that without electricity you cannot have broad-based economic growth.
For many readers in developed countries this may sound really odd. We take electricity for granted. But imagine a situation in which, if you live in a city, power is cut off for several hours, every day. And if you live in a rural area there is no electricity whatsoever, period. Imagine doing routine things, (reading, ironing, riding an elevator, running a washing machine, watch TV, use your computer), without any power.
No power, no growth
Of course, if you are a rich city-dweller in Africa, you can buy a generator. But making your own power is expensive. Imagine running a small manufacturing company relying on your generator for several hours, every day. This is possible, of course. But it adds to costs, in a major way. And this means non competitive products and smaller markets. If you live in a city and you are poor, forget about expensive generators. Lack of electricity means no lights, no refrigeration, no chance to watch TV.
If you live in an African village with no power, you are essentially cut off from the larger economy. Sure enough, these days you probably have a cell phone, and you may have access to a solar-powered phone charger.
The rural poor stay poor
But you have no electricity. This means using wood or charcoal for cooking. Alternatively, you have to spend a large percentage of your truly small income, (we are talking about people surviving on a couple of dollars a day), to buy fuel for a stove.
And forget about basic developed world amenities such as refrigerators. Forget about switching on the (non existing) lights at night. In such circumstances of basic deprivation it is very difficult, in fact nearly impossible, to advance to the middle class. Lacking electricity, most African are condemned to a life of perpetual poverty in which at best people survive thanks to subsistence agriculture.
Other factors also matter
Of course, there are additional factors that prevent economic growth, and therefore the expansion of a fledgling middle class. Health and education are key issues. Difficult to have economic progress with too many semi-illiterate and sick people.
Right next to these constraints, you have infrastructure, or lack thereof. While electricity is fundamental to any kind of economic development, good road, ports and modern customs systems that allow the easy movement of goods are also critical.
Yes, while this may sound odd, moving goods by truck on old roads is quite complicated in Africa. Likewise, clearing goods through antiquated (and often predatory) customs systems may take several days, or even weeks. All these obstacles hurt commerce and all companies that want to be engaged in international activities.
Economic growth will lead to the expansion of the middle class
So, what about the future of the African middle class? Very simple. Hard to picture any significant expansion without basic modernization that will make more economic growth possible. Africa has come a long way. There are hundreds of millions of cell phone users, there are plenty of ATM machines, and internet penetration is improving. But African societies must fill huge gaps. While many issues are relevant and should be addressed, the number one problem is still power generation and distribution.
In Africa this is literally the difference between day and (hopelessly dark) night.