By Tolu Ogunlesi
Charles Robertson (@RencapMan on Twitter) is Renaissance Capital’s Global Chief Economist and Head of Macro-strategy Unit. He was in Lagos recently for Rencap’s 4th Annual 1:1 Pan-Africa Investor Conference in Lagos, from February 11 to 13, 2013. I didn’t attend the conference itself, but got a chance to meet Mr. Robertson at a cocktail that Rencap hosted on the evening of Day 1, at Avenue Suites in Victoria Island.
It was my first time meeting him – in person. We’d previously exchanged a couple of emails in the past, and engaged in Twitter debate.
So it was a pleasure to finally meet the lead author of THE FASTEST BILLION: The Story Behind Africa’s Economic Revolution, launched November 2012, and with foreword written by Ngozi Okonjo-Iweala, Nigeria’s Minister of Finance and Coordinating Minister of the Economy. (I’m going to be reading and reviewing it in March – watch this space).
The week before Lagos he’d attended a UK-Nigeria Bilateral Banking, Finance and Investment Development Conference in London, at which the Nigerian junior Minister of Finance, Dr. Yerima Lawan Ngama, had spoken.
Over wine and Chapman we talked about Arsenal, Twitter, and Nigeria – reforms, agriculture, and the Middle Class Question.
Robertson is an Arsenal fan, but he didn’t sound as angry and frustrated as Arsenal fans tend to (especially on Twitter). He spoke excitedly about the bliss of living close to Arsenal’s Emirates Stadium.
We talked about Nigerian data, the ease of accessing it. He was impressed by the quality of statistics available online from Nigeria’s Central Bank (CBN) and the National Bureau of Statistics (NBS). According to him it’s much better than the data he had access to when he covered Greece as an analyst in the late 1990s.
Minister Akin Adesina came up in our conversation – I consider him one of the few inspiring, optimism-sustaining faces in the Goodluck Jonathan cabinet. [In my opinion it's a tragedy that the phones-for-farmers scheme played out the way it did. My feeling is that the Minister needs to pay as much attention to his communication strategy as to his reform agenda].
We also discussed the Nigerian government’s reform programme – originating of course in Obasanjo’s 1st term as President; clearly Nigeria is in a better place today – in terms of creditworthiness and investor perception – than ever before. Robertson pointed out that the fact that international markets will today lend to Nigeria at 4% interest rates is “remarkable.”
He said something quite interesting about the “penalty of success” that tends to accompany reform programmes: that a time comes when “the people creating success are [no longer] seen as necessary to sustain it.” Food for thought, definitely!
The African Middle Class
The question I most wanted to ask Robertson about was to do with Rencap’s report on the Nigerian Middle Class. I’ve always thought it unrealistic, saccharine. Rencap’s benchmark is of course much more realistic – and Robertson made sure to point it out in his response to me – than the ones put forward by the African Development Bank’s report, which considers $2 per day disposable income as the baseline for measuring the African Middle Class.
In that report, The Middle of the Pyramid: Dynamics of the Middle Class in Africa, the AfDB defines the African Middle Class as individuals with “per capita daily consumption of $2-$20 in 2005 PPP US dollars.”
The study classifies that middle-class into 3:
- a ‘“floating class” with per capita consumption levels of between $2-$4 per day…’
- a ‘“lower-middle” class with per capita consumption levels of $4-$10 per day…’
- an ‘“uppermiddle class” with per capita consumption levels of $10-$20 per day’…
Do you, like me, find that ridiculous? A Lagos or Nairobi upper middle class surviving on $20 a day?
Rencap is more realistic, but even then, I still have issues with their assumptions. [Now, as a disclaimer, I'm not an economist, and not the most comfortable person in the presence of numbers. I did however enjoy, and if I recall correctly, excel in, secondary school Economics].
Rencap’s Middle Class report is based on a survey of only 1,004 Nigerians, in Lagos, Abuja and Port Harcourt.
Now, here are some highlights of Rencap’s “findings”:
- Their average monthly income is in the range NGN75,000-100,000 ($480-645, or roughly $6,000-7,000 pa).
- Educating their children well is a top priority, and over half send their children abroad to complete their education.
- A sizeable 76% of our sample work in the public sector; of those working in the private sector, 38% run their own businesses.
Put those two together, and you’ll be forgiven for being confused. How do you send a child abroad on an annual salary of $7,000 (less than N1.2 million per annum) – in LAGOS or ABUJA? Where’s the rest of the money coming from, o thou civil servant?
The findings above raise a lot of questions. $7,000 in salaries is Lagos is less than what a young entry-level employee in banking or telecoms or oil & gas will earn. It’s barely enough to pay for BOTH an apartment (minimum rent one year, Lagos-style, two in many cases) AND a car (which is a necessity for the Lagos middle-class, in the absence of mass transport services targeted at the middle-class). How does a middle-class male Lagosian afford accommodation, a car(s), fuel a generator, pay school fees (including at least one denominated in dollars or sterling), on N100,000 per month? Obviously we’re not getting the real picture.
Robertson acknowledged the fact that the Rencap survey is not flawless – assembling data / statistics in a country like Nigeria is a tough and thankless job, and usually happens with minimal or no support from the government bureaucracy. But it is at least is a starting point in the direction we need to be heading.
I have a couple of thoughts on the Middle Class.
1. No doubt there is a growing middle class in many African countries. The evidence is all around us. Compared to the late 1990s, when dictator Sani Abacha was in power. Civil service salaries have since risen appreciably (credit for this goes to President Obasanjo’s government), the country is awash with more money, on the back of rising oil prices, and over the last decade the explosive growth in sectors like telecommunications and entertainment (music, Nollywood) and ecommerce have helped create wealth. Nigeria is today a significant (sometimes the ‘leading’) growth market for a good number of consumer companies, from PZ Cussons to Diageo to Unilever, and for luxury brands like Hennessy and Porsche. [Robertson told me about an Economist Africa conference at which he spoke in January, in London, alongside Strive Masiyiwa, Founder and Chairman of Econet Wireless Holdings and President Diageo Africa, Nick Blazquez, on a panel focusing on the African Middle Class. There is clearly a lot of excitement about a "rising" African Middle Class and consumer spending.]
2. One of the oft-told stories about China and Brazil is one to do with how their governments have managed to lift millions of people out of poverty, into the middle class. Brazil’s happened under the watch of President Lula (2002 – 2010). I’m fascinated by these stories, and wonder why a country like Nigeria is failing to replicate that, despite the proliferation of schemes like NAPEP and PAP. (I’m assuming those were aimed at nudging people out of absolute poverty into a post-poverty-but-not-yet-middle-class class). Why is Nigeria spectacularly failing to achieve a mass uplift of its citizens into the middle-class, the way China and Brazil have done / are still doing?
Which leads me to my next point:
All the optimistic reports and the excitement aside I do not think – and I may be mistaken – Nigeria is creating a statistically-significant new cadre of middle-classers. Emphasis on statistically-significant and new. No doubt there’s a growing middle class in Nigeria, but I suspect that this growth can be attributed mainly to 2 classes of individuals:
1. Ex-members of a once-thriving middle-class that was decimated by the mismanagement, Structural Adjustment Programme (SAP), and all-out military repression of the 1980s and 1990s; and who are now being readmitted into the M-club (this would include civil servants ie school-teachers, University staff, Government health professionals; and Entrepreneurs/businesspersons/service-professionals ie tailors/fashion designers, shop-owners, private-practice lawyers, accountants, architects, doctors, etc).
2. Young people who are leaving University and finding jobs in banking and telecoms and technology and construction and e-commerce and oil & gas, and earning salaries decent enough to sustain a comfortable life in Lagos: a car, an apartment, regular clubbing, summer holidays, etc. These people move from their student budgets to expenditure levels that are several multiples of the student budgets. I wish we had numbers for this class – I estimate it’ll be something in the region of the tens of thousands annually (no more than that), a negligible number placed against the size of the unemployed youth market.
These young people are not a NEW middle-class, as far as I’m concerned. They are tertiary institution graduates already set up to belong to the middle-class. The new middle-class I’m looking for – and which I fear does not exist to any appreciable extent – is the one in which people are rising – in large numbers – out of poverty into middle-class wealth without the benefit of middle-class upbringings or a tertiary education starting point. I’m thinking of examples like the following:
a. A subsistence farmer in a rural area who graduates into mechanized farming, and sees a significant rise in his income (this is very important considering that agriculture is the largest employer of labour in Nigeria).
b. A young Nigerian with limited formal education who succeeds at a vocational entrepreneurial venture — plumbing, carpentry, welding, trading (succeeds enough to rise into middle-class and have the opportunity to give his children a life far better than the one he enjoyed). I’m thinking of a street-hawker who somehow graduates into owning a proper shop in a proper market. I’m thinking for example of all the young traders in Alaba International Market who go on to gain their “freedom” after years of apprenticeship and then set up thriving businesses of their own.
I did try to explain the POV above to Mr. Robertson (he told me he came out of a working-class English background), and he seemed to agree with me.
I’d like to know what readers think of this African Middle Class concept. The AfDB report. The Rencap report. The unbridled optimism regarding the growth of an African Middle Class. Is this for real, or are there serious cognitive biases at play here? Do you agree with my argument – or have a different one?