S Africa’s economy signals change

The emergence of a growing black middle class in South Africa could be signalling a change in the continent’s largest economy and a possible new global economic trend, some economists say.

The trend could be a vindication of Mbeki's economic policies
The trend could be a vindication of Mbeki's economic policies

The trend could prove a vindication of the centrist policies associated with Thabo Mbeki, the country’s president, as a growing middle class is regarded by some economists as a cornerstone of stability in developing countries

However, others fear that it could develop into widening income disparities within the black community which could be a source of further social tensions and violent crime.

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

Catalyst for growth

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 two million.

“The middle class itself has grown… this is great for social stability and is a catalyst for growth”

Adenaan Hardien, South African economist

That forms less than 10% of an adult black population of about 22 million, and only about 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 ($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 per cent, according to some estimates.

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

And 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.

Spending impetus

Recent 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 more than two decades, alongside gains in the rand currency from 2002 to 2004.

Many South African blacks still live in poverty

Many South African blacks still
live in poverty

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

Concerns about this have pushed the rand down against the dollar in recent weeks and the central bank last month raised rates in a pre-emptive strike against inflation.

But, while analysts see further modest hikes on the horizon, they doubt it will cool demand, reflected in data from record new car sales to growth in private credit, which is more than 20per cent each year.

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

‘Black diamonds’

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.”

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.

Source : Reuters

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