A Perspective On The Growing Middle-Class In Sub-Saharan Africa

 In a 2011 report, The African Development Bank categorized the African Middle-Class to mean the segment of the population with a daily income of between $2 to $20. Recent studies will describe the Upper Middle-Class as the segment with a daily income ranging from $15 to $30. Interesting to note that in most parts of the continent with a particular focus on Sub-Saharan Africa, there is a conscious effort not only to achieve upward social mobility but also to maintain the heights attained. It might therefore not be unrelated why some reports have started the middle-class is not only measured by average daily income but also by the ability to 'mask' poverty. Pretty interesting one! 😉😉

I have always been of the school of thought that a person's level of education or the amount of knowledge they can impart amongst their peers is an interesting method of categorizing the middle-class. The rise of social media and online applications that have exposed the masses to different niche perspectives of the global socio-economic and cultural landscape is definitely a defining factor impacting the growth of the middle-class in Sub-Saharan Africa. Several years ago, as a young professional I had the habit of befriending urban transportation drivers. With the absence of the Ubers at that time most arrangements were settled on phone. I needed good relations with these guys since my demands usually came at extreme odd hours. In our daily interactions and conversations, I realized one thing, most of the people belonging to this segment of the population at the time were paying between x10 to x20 the value of the school fees their counterparts paid for their kids' education during my childhood days. Quick calculations on the effect of inflation then it dawned on me there is little doubt to the statement that there is a growing middle-class in Sub-Saharan Africa.

Without overwriting the impact of remittance to the development of the middle-class in Africa, it'll be a good question to ask what options are available to Africans to invest and make a reasonable RoI as a path to achieving upward social mobility and maintaining the status quo.

The continent aka 'The Last Frontier Market' over the last couple of years have seen the explosion of the need to create credit facilities for its inhabitants. We have witnessed the explosion of FinTech Lending offerings targeting the segment of the population with erstwhile little or no access to credit to further their economic and social activities. It is comfortable to say in the coming years we will see a huge adoption of credit rating systems touching all segments of the population of sub-Saharan Africa with unprecedented lending options. Even though Fintech is bringing the masses closer to the core Financial System, there is a cross section of the African upper Middle-Class who have full access to the financial system with established credit ratings. These are primarily people with steady employment, bank account and full access to the services offered by their financial institution. Looking from a layman's perspective, do we have sufficient instruments available in the region that will enable such individuals make a meaningful investment and a decent RoI upon retirement? and as a result, safeguarding a comfortable nest egg for their retirement?

Let's look at the United States housing market with the assistance of graphical illustrations.

Figure:1- Showing rate in change of Residential Real Estate Prices from FY'10-FY'23 Projected.

 

Figure:2- Shows changes in prices/equity for an asset worth $200K within the period FY'10-FY'23

 

Figure 2 paints a picture on what returns on equity an investor [from SSA] made within the period ranging the recovery from the FY'08 global financial meltdown till date as we gradually lick the wounds and heal from the scars of the pandemic. An interesting takeaway will be having a CAGR of approximately 16.2 percent within this period. I cannot tell you for sure if the next decade of investing in residential real estate can produce a similar scenario in the United States. However, let's look at a graphical illustration on how an asset bought for $200K in FY'23 will fair based on the projection that the value of the residential real estate market will grow at a CAGR of 5.77% through FY'28.

Figure:3- Change in prices on home price with an initial asset value of $200K through FY'28

     

The high demand for residential real estate in the United States is likely going to put pressure on the price per inventory right into the 2030s.

This brings us back to our initial question regarding the Middle-Class[Focused Sub-Saharan Economy]. With the always present motion to attain upward social mobility, do we have instruments that can become the tools needed for our present and future young urban professionals in the Region to maintain their social status-quo while guaranteeing a comfortable financial future for themselves and their loved ones? I am tempted to ask if individuals, employers, financial service institutions and niche boutique firms looking at the real estate market in the United States of America as an investment opportunity.

Consider the on-going scenario for an initial investment in a residential real estate in U.S.A valued at $200K today: 

Figure:3-Looking at the Price and Initial Deposits and Monthly Deposits for an asset valued at $200K

 

You might all agree that in regions of the world with a growing middle-class having alternatives for investment for this segment of the population is a fundamental aspect in pushing the pointer forward in achieving lasting social and economic prosperity. This still brings us to the point, have you considered harnessing the opportunities in the developed parts of the world as a differentiation tool which has the potential to empower your client base and organization financially? Needless to say, the upper economic class in emerging economies must have had access to such investment opportunities. However, contemporary innovative business models have created a plethora of perspectives that forward moving organizations and financial pools can adopt to create value and a win win business scenario for its stakeholders.

A quick glimpse at Figure:3 gives an indication that investment can be pooled from 5 individuals who fall within the African Development Bank index of the upper middle-class in Africa to create a scenario which will avail a fractional investment of approximately $209 monthly over a period of 30 years.

Now without mentioning names, there is an existing and potential proliferation of mobile apps in Sub-Saharan Africa with unique offerings that are bound to include fractional investments in residential real estate in the United States. Whether you are an organization or professional looking at placing a highly potential winning bet in properties outside of Africa, you might be considering steps to adopt which will create a seamless and easy to use method of identifying and qualifying investment opportunities in the United States real estate market.

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