Black middle class signals change

The trend could prove a vindication of the centrist policies associated with President Thabo Mbeki as a growing middle class is regarded as a cornerstone of stability in developing countries, analysts say.

The flip side of this scenario is that it may point to widening income disparities within the black community which could be a source of further social tensions and violent crime.

“There is increasing evidence to substantiate the view that there is a very strong structural underpin to the consumer spending that we have been seeing for awhile now. That structural change is the black middle class,” said Adenaan Hardien, an economist with African Harvest Fund Managers.

Recent research by the University of Cape Town’s Unilever Institute suggests that the black middle class ‘ referring to indigenous Africans and not mixed-race “coloureds” or Indians ‘ now numbers around 2 million.

That is out of an adult black population of about 22 million so it is less than 10 percent of that group.

The research also suggests that only 100 000 blacks comprise the so-called “buppies” (black urban professionals) who drive expensive cars and eat at exclusive restaurants.

According to the Unilever study, the average monthly personal income of the new black middle class is 5 900 rand (US$832), so its net is broad and includes lower-paid white collar civil servants.

Most blacks still live in poverty, and unemployment in the group may be as high as 40 percent according to some estimates.

But the black middle class is growing off a low base rooted in the apartheid era when blacks were largely excluded from economic activities apart from manual labour.

Pointedly, analysts say it is not simply a matter of black faces replacing white ones who have emigrated.

“The middle class itself has grown . . . this is great for social stability and is a catalyst for growth,” said Hardien.

Growth in South Africa’s economy has been fuelled by consumer spending which many analysts have attributed to interest rate cuts which drove lending rates to their lowest levels in over 2 decades, alongside gains in the rand currency from 2002 to 2004.

This has pushed a healthy trade surplus deeply into the red and worsened the current account deficit, which widened to 6.4 percent of gross domestic product (GDP) in the first quarter of this year from 4.5 percent in the previous quarter.

Concerns about this have pushed the rand to 2-1/2 year lows against the dollar in recent weeks and the central bank last month raised its key repo rate by 50 basis points to 7.50 percent in a pre-emptive strike against inflation. But while analysts see further modest hikes on the horizon, they doubt they will cool red-hot demand, reflected in a range of data from record new car sales to growth in private credit which is more than 20 percent year-on-year. Growth in some of these areas has been slowing but remains very strong.

“That impetus to consumer spending from the black middle class is likely to remain there for awhile,” said Hardien.

Once people obtain a certain income that allows them to borrow cash they buy things ‘ and higher rates may be no hindrance to the aspirations of the previously marginalised.

“As soon as people get access to credit they begin acquiring assets,” said Paul Egan, a managing consultant at the Unilever Institute and part of the team there that has studied the phenomenon of the so-called “black diamonds.”

Similar trends were seen in United States and other parts of the developed world during the boom years of in the 1950s and 1960s when large numbers of workers suddenly had disposable income which could be spent on amenities.

Analysts also question the wisdom of raising rates if the structural sea-change in the economy means the spending boom is not inflationary. Consumer inflation remains well within the 3 to 6 percent target range although it is quickening.

“What we need to figure out is if this spending boom is inflationary because if we are seeing a structural shift in the economy then we may eventually see a supply side response in the economy as well,” said Standard Chartered economist Razia Khan.

South Africa’s growing black middle class mirrors similar trends in Asia at a time when the middle class in some parts of the developed world appears to be shrinking as real incomes stagnate and decline.

It could therefore be a pointer to a broader global trend ‘ the making of a “Third World” middle class which is narrowing the gap between the planet’s have and have-not regions. ‘ Nampa-Reuters.

July 2006
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