Africa's middle class may be 17 times smaller than we thought

A new Credit Suisse report casts serious doubt on a widely accepted global economic trend.

Sub-Saharan Africa has experienced solid economic growth in recent years, with the World Bank projecting 5.6% GDP growth across the region in 2016-2017 even when South Africa is discounted.

As a World Bank chart demonstrates (see left), sub-Saharan Africa is outperforming the rest of the developing world.

The region’s relative growth has fed some optimistic projections of the size and power of the continent’s “middle class.” As scholar John Campbell notes in a blog post for the Council on Foreign Relations, a 2011 African Development Bank paper tagged the African middle class at over 313 million members.

But the growth of the continent’s middle class may be a mirage. Campbell writes that according to Credit Suisse’s 2015 Global Wealth Databook, which was released in October, Africa’s middle class may be “almost seventeen times smaller than had been previously thought.”

As Campbell explains, previous calculations of the size of the African middle class used income or consumption-related criteria. In contrast, Credit Suisse measured middle-class membership based on assets and wealth accumulation.

The report reasons that middle class membership implies a degree of financial resilience — under its criteria, membership in the middle class means that an economic shock, like the loss of an income stream, won’t be enough to automatically change a household’s status. Credit Suisse used the purchasing power of the US’s sizable middle class as its benchmark, and defined “middle class” households as having somewhere between $US50,000 and $US500,000 USD in wealth, adjusted for purchasing power by country. Thus, $US18,000 in wealth is the report’s cutoff for “middle class” status in India; in Switzerland, it’s $US72,900.

Going by these criteria, just 18 million people, or 3.3% of Africa’s adult population, is middle class, compared to 38.8% of the population in North America and 10.7% in China.

Just as alarming as the actual size of Africa’s middle class is its limited geographic distribution.

As Campbell explains, according to Credit Suisse’s analysis, a quarter of Africa’s middle class lives in South Africa, which is already one of the continent’s most developed economies. Some 922,0000 members of the continent’s middle class live in Nigeria, which has the largest economy of any African country. Credit Suisse also counts the relatively prosperous Arab countries in North Africa in its analysis of the continent, implying that the remaining African middle class is spread thinly throughout the continent’s dozens of other states.

That includes countries with gaudy economic growth or lucrative extractive industries.

Ethiopia’s economy saw a double-digit spike in GDP in 2014. Angola’s oil boom has turned Luanda into the world’s most expensive city for expats. Deloitte opened an office in Rwanda last year; Zambia has seen the steady expansion of its copper-mining industry over the past decade. But the Credit Suisse data shows that the benefits of this development haven’t been evenly distributed.

As Campbell writes, “There is a strong argument that it is primarily the African rich, even super-rich, that have been the primary beneficiaries” of Africa’s economic growth, with “only 1.15 million adults or 0.2 per cent of African adults [accounting] for 30.6 per cent of the continent’s wealth,” according to Credit Suisse’s calculations.

Radical wealth inequality is perhaps unsurprising for much of Africa. Some of Africa’s fastest-growing economies are in countries with authoritarian governments. In Ethiopia, Rwanda, or Angola, long-serving autocrats have a strong incentive to make sure that their small circle of elite supporters are kept happy. Meanwhile, fast-growing democracies like Nigeria have endemic corruption and entrenched business interests that prevent the state from channeling economic growth into effective policy.

But the Credit Suisse data suggests that Africa’s strong growth — fuelled through natural resources, cheap labour, and investment from China — hasn’t been enough to change the underlying economic, social, or political conditions that hamstring development in the first place. The growth of the middle class is an almost nonexistent phenomena throughout most of the continent, meaning it will take something more than just rising GDP to bring broader prosperity to many of the continent’s supposedly emerging economies.

The Credit Suisse data has some jarring political implications as well.

Throughout Africa, people are watching the benefits of a supposed economic boom accumulate in the hands of a very small number of corrupt or well-connected people, many of whom have been around for a while — Angolan President Jose Eduardo Dos Santos has been in power since 1979; in Rwanda, President Paul Kagame, who has ruled the country since the mid-1990s, is attempting to amend the constitution in order to stay in power until as late as 2034.

That’s not a recipe for long-term stability. People across Africa might already be wondering why they’re being frozen out of the continent’s supposedly growing prosperity — and what kind of political or social changes would be needed in order to reverse course.

NOW WATCH: This animated map shows how humans migrated across the globe

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.