The middle class in Nigeria

By IndepthAfrica
In Article
Jan 14th, 2013
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BusinessDay

Like the African Development Bank, Abhijit Banerjee and Esther Duflo, two economists known for their work with the poor, define the middle class as households whose daily per capita expenditures valued at purchasing power parity are between $2 and $4, and those between $6 and $10, located in rural and urban areas.

Economists wonder if Nigeria’s floating middle class will trade up in 2013 – that is, from subsistence consumers to middle class. Will an army of entrepreneurs “with a capacity and a tolerance for delayed gratification” emerge from the middle class to create employment in urban Nigeria? They will have to come from Nigeria’s young and economically active age group of 18 to 65 years old. Their emergence depends on values: human capital accumulation (knowledge) and savings (frugality).

Banerjee and Duflo, based on their definition of the middle class, those at the top of income range ($6 to $10) are like the English middle class of the 19th century – the engine of British economic growth. In 1825 income per person in a family of  one breadwinner, his wife and three children was about $12.50 a day; “given that these families probably saved quite a bit puts them only a little above $10 daily per capita expenditure”.

In Nigeria, consumer-facing companies will benefit the most as Nigerian households, inflation and inclusive growth permitting, increase the share of their budget spent on food, entertainment, e.g., television, education and cement. Such companies, using proprietary research gleaned from their supply chain and network of distributors, are tailoring their products to suit the pockets of consumers. For instance, products of Consolidated Breweries are priced so that consumers can “trade up from ‘home’ brews and cheap spirits (shots) to real beer”.

However, the number of people that will trade up will grow if the middle class in rural or urban areas can get jobs or capital to start or sustain a business. Banerjee and Duflo reckon that “getting something without a large resource commitment appears to infuse most businesses of the middle class… businesses might be less an engine of growth than a means of sustenance, a way of ‘buying a job’.”

In other words, middle class family businesses do not grow, because it is not the priority of the owners (the business is an extra source of petty cash); human capital investments – the best education and healthcare – are more important. Thus formal employment with social safety nets may be the way to job security.

Nigeria can avoid what Pat Utomi calls “a self-inflicted meltdown” if the policies are targeted at promoting industry-oriented technical skills alongside light manufacturing companies in Export Processing Zones to complement agriculture produce clusters across the country.

According to a World Bank report, from 1999 to 2006 the number of people employed in family agriculture businesses increased – the share of young people engaged in the business doubled. During that period there was a major shift into agricultural employment and a shift out of wage employment. The report also notes that the fastest rise in incomes was in the agricultural sector and in the lowest income bracket, but also in the urban sectors.

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