Global South’s Middle Class is Increasing Prosperity

The global middle class is on the rise – and this is creating both challenges and opportunities. As poverty rates have come down across the global South, many countries have seen a rise in the proportion of their population categorized as “middle class”. Globally, being middle class is defined as a person able to consume between US $4 a day and US $13 a day (ILO).

According to the Organization for Economic Cooperation and Development (OECD), most of this growth will be in Asia and the region will soon make up 66 per cent of the world’s middle class. Historical experience shows that members of the middle class quickly become absorbed in spending their accumulated capital on housing, equipment, industry and business, health and education. In countries with a growing middle class, policy makers need to show a strong interest in creating stable economic conditions to encourage this expanding consumption and domestic demand, the OECD advises.

Growth of the world’s middle class took off after 2001, with an additional 400 million workers joining this group. The McKinsey group of consultants found the total number reached 2 billion in a dozen “emerging nations” in 2010, collectively spending US $6.9 trillion every year (McKinsey).

Forecasters predict a further increase in the middle class across the global South will bring with it a surge in consumption (a combination of spending and demand). Areas being highlighted by various studies and reports include China’s small and mid-size cities, other areas of East Asia and Africa.

Middle class spending in these dozen emerging nations could reach US $20 trillion during the next decade – twice the amount of consumption occurring in the United States right now (McKinsey).

The result is a re-shaping of populations, with growing numbers of people now neither rich nor desperately poor, but landing in the middle of the income distribution.

And local competitors in the global South are fighting hard for these consumers on their own turf.

The Hangzhou Wahaha (http://en.wahaha.com.cn/) beverage maker in China has been able to compete against multinationals such as Coca-Cola and PepsiCo, according to McKinsey. It has turned itself into a US $5.2 billion business using a multi-pronged strategy: targeting rural areas, catering to local needs, keeping costs low and positioning itself as the patriotic choice.

And this change is also occurring in Africa, where a growing middle class is fuelling sales of refrigerators, television sets, mobile phones, motors and automobiles across the continent, according to the OECD. In Ghana, for example, car and motorcycle ownership has risen by 81 per cent since 2006.

According to the African Development Bank (AfDB), Africa’s middle class has reached 34 per cent of the population, or 350 million people. In 1980, it was 126 million people, or 27 per cent of the population.

Countries with the largest middle classes in Africa include Tunisia and Morocco, while Liberia and Burundi have the smallest number of people in the middle class.

The economic growth that is fuelling this middle-class surge is coming from a combination of increasing investment in the services sector, the tapping of the natural resource sector and better economic policies in the past two decades. Africa’s middle class is driving growth in the private sector and boosting demand for goods and services, most often also provided by the private sector.

“The liberalization of African economies has resulted in improved efficiencies and led to a rapid growth in the service sector, which has spurred the growth of the middle class,” Lawrence Bategeka, a principal researcher at the Uganda-based Economic Policy Research Centre, told The East African newspaper.

How important the middle class is to increasing consumption levels can be seen in the cases of Brazil and South Korea.

According to the OECD, both countries had similar income levels and growth rates in the 1960s. But by the 1980s, high income inequality in Brazil capped the middle class at 29 per cent of the population. In South Korea in the 1980s, the middle class population reached 53 per cent. This larger middle class population enabled South Korea to switch from an export-driven growth strategy to domestic consumption.

While Brazil wasn’t able to do this at the time, it has since made impressive gains in reducing poverty – from 40 per cent of the population in 2001 to 25 per cent in 2009. This has seen the middle class grow to 52 per cent of the population and boosted domestic consumption.

While a rising middle class in the global South is good news for improving human development and living standards, the OECD found much of the new middle class was vulnerable and could easily slip out of that category. They also often lacked enough income to purchase more expensive durable goods such as automobiles (OECD Yearbook 2012).

The success of this fragile but growing middle class will be key to how well the global economy fares in the coming years.

A new report by the UN’s International Labour Organization (ILO) argues that the global South’s growing middle classes are just the thing to spur growth across the wider world economy.

“Over time, this emerging middle-class could give a much needed push to more balanced global growth by boosting consumption, particularly in poorer parts of the developing world,” said Steven Kapsos, one of the authors of the report.

In Indonesia, an example of the economic impact of the middle class trend in action can be seen in the surging life insurance business.

Association of Indonesian Life Insurance Companies (AAJI) chairman Hendrisman Rahim believes the growing middle class are potential customers for the country’s thriving life insurance industry.

“They are the ones who have the need to be insured and can afford to purchase a policy. Extremely rich people are financially capable [of buying], but may not have the need. Extremely poor people have the need, but require financial assistance to be insured,” he said to the Jakarta Post.

As the Indonesian middle class increases, the life insurance industry is expecting to see revenue rise by 30 per cent in 2013.

By David South, Development Challenges, South-South Solutions

Published: February 2013

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Powerful Solar Light Spurring Income-Making Opportunities

 

A clever innovator from India has built a highly durable solar lantern that also doubles as a mobile phone charger.

The Sunlite lantern – the JS 30 MOB Sunlite – made by Sunlite Solar (sunlite-solar.com) is an LED (http://en.wikipedia.org/wiki/Light-emitting_diode) light packed with clever innovations. It is completely self-contained and does not require any extra parts, cables or separate solar panel to charge it. The clever design includes a pop-up, fold-down handle, a powerful solar PV (photovoltaic) panel on its top that – with a day out in the sun – charges the lantern’s battery enough to provide around 8 hours of 360-degree light when the sun goes down. It is also highly durable and moisture and heat resistant and can withstand a drop on a hard floor.

The manufacturer of the Sunlite lantern is India Impex, which focuses on making and exporting high quality off-grid solar lighting products and sees itself as a “socially driven company.” Founded in 2009, it has built up its reputation as a global vendor to humanitarian and relief agencies.

To date, the Sunlite lantern has been distributed to people following Japan’s 2011 earthquake and tsunami, after Thailand’s 2011 floods and to refugees caught up in the ongoing crisis in Syria.

“For the size of the lamp, for the number of hours, for the features we give, including the mobile (phone) charging – we are 100 per cent portable – it is all integrated,” said Sunlite representative Divyesh Thakkar, while demonstrating the lantern at the 2012 Global South-South Development Expo, held recently in Vienna, Austria (southsouthexpo.org).

The mobile phone charging capability has been seized as a great way to turn the lantern into an income-generating opportunity. Already, people are forming co-ops and charging rent time on the lantern for recharging mobile phones. And there are a few clever tweaks to the lantern to help control this.

“I don’t want this to be abused – I want it to be smart,” said Thakkar. “When someone comes in and charges the mobile phone and forgets, it is going to cut off after 20 minutes.”

Sunlite lanterns have many uses, according to the product’s maker. One aspect the manufacturer is emphasizing is the importance of light to the security of women and children. There is overwhelming evidence that better lighting makes for a more secure environment, and allows people to do more things safely at night. Children can look out for environmental threats such as poisonous snakes and spiders, and women and girls can feel safe doing things like going to the toilet without worrying that somebody might attack them in the dark.

Solar power is being seen as a way to get electricity to people in areas bypassed by conventional electricity grid networks. It also helps move people away from expensive, polluting and dangerous alternatives such as diesel generators, paraffin lamps, gas stoves and coal or dung fires.

“We compare our solar lantern to the kerosene lantern,” Sunlite representative Sagar Mehta explained. “On a payback basis, you use an approximate of 30 to 40 cents of a US dollar of kerosene every day for a four-hour light. First of all, it is very harmful – smoke inhalation, illnesses, burns, all sorts of things, security issues.

“That will cost a family one third or half of its income on a daily basis. If we can change this around where if we can make a solar lantern, where the sun is free, that can pay back in three months and you start earning rather than paying, (they are) making a living.”

Solar-powered devices have many advantages. They can power up their batteries during the day while sitting in the sunshine and then be a source of light and electricity at night. This free energy source reduces the cost of running lights at night and means people can do a wide range of activities, from reading and studying to running a business or socializing. Some have even used Sunlite lanterns as landing lights for aircraft runways in Africa.

Sunlite lanterns are currently being distributed to people in disaster situations and also in refugee camps and displaced persons communities.

“The lamp was developed as a basic light for refugees who don’t have anything and have been displaced from homes,” said Mehta. “We supply in excess of 50,000 lamps every year to aid agencies, in particular the (UN’s) refugee agency.”

In order to keep tight control on quality and be able to have an inventory of lanterns ready to go on a moment’s notice, the company has invested in and set up its own in-house manufacturing facilities in India.

Sunlite Solar sees itself as a social enterprise. It is not focused on quick profits, and developing the lantern has taken time.

“It requires a huge amount of investment and time,” said Thakkar. “We spent two years without selling a single piece. What we did was our R&D and went out in the field, some of the most dangerous places – Rwanda, Uganda – actually training people to use it and getting the awareness.

“When you work with the UN, when you work through other government channels, it is just a long process which you have to be willing to go through.”

By David South, Development Challenges, South-South Solutions

Published: December 2012

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Woman Restaurant Entrepreneur Embraces Brand-Driven Growth

 

The journey of Zhang Lan is the tale of an entrepreneur who exemplifies the story of globalization. She has gone from working many part-time jobs while studying overseas, to becoming one of China’s most successful food entrepreneurs.

Starting with a very small and humble restaurant specializing in spicy food from China’s Sichuan province, Zhang has cannily used branding innovation to grow her business and build her reputation in the food trade. Today the company she started, South Beauty Group (southbeauty.com), has 71 restaurants, most in major cities such as Beijing and Shanghai.

A series of bold moves focused on raising the profile of her restaurants and the South Beauty Group has paid off: the group was singled out by the China Hotel Association as one of the top 10 Chinese restaurant brands. By riding the country’s breakneck growth and urbanization, her restaurant group has enjoyed double-digit growth in recent years in revenue and profits.

Zhang’s mission is to revitalize the Chinese restaurant scene by introducing a more upscale and consistent dining experience.

China’s restaurant industry is booming and represents a significant opportunity: it is said it will have revenue of 3.7 trillion yuan (US $590 billion) by 2015 (China Daily).

“Most people in China don’t know how to present food. I am happy that I have given some importance to the appearance of food,” Zhang told the China Daily newspaper.

“I strike a balance between popular and high-end brands in my daily life. This also works for South Beauty Group, which aims to attract customers to a modern place to enjoy high-grade and popular Chinese cuisine.”

Her business mission is to take the group outside of China and become a global brand.

“Buoyed by the booming domestic high-end catering market, South Beauty Group is looking to be a major luxury brand in the global catering industry. It is not an easy task considering that there are different cultures and eating habits. But my past experience has taught me that opportunities often come along with challenges,” she told China Daily.

Zhang’s business story started in a journey to Canada to pursue further education. To make ends meet, at one time she took on six part-time jobs, including washing dishes and food preparation.

Anybody who has gone to another country to work and better their life knows how hard this can be: “During that period, I was so tired by the end of the day that I had to lift my legs onto the bed with my hands,” Zhang said.

But working hard in restaurants and beauty shops earned her US $20,000 in savings within two years.

She returned to Beijing in the early 1990s, a time when the country was undergoing significant market reforms. She opened a small restaurant in Beijing in 1991 serving Sichuan cuisine. Dining out was still a new experience in a country that had spent decades under austere communism. She made her restaurant different by emphasizing cleanliness and unique flavours for the food. She even used the design of the restaurant to set it apart: she gathered bamboo from Sichuan and used it to transform the restaurant into a little bamboo house.

This attention to detail paid off. By 2000, Zhang had been successful enough to give her the confidence to open her first South Beauty Restaurant in Beijing’s China World Trade Center, a high-end office building in the Central Business District. It proved to be a great way to boost her business’s profile.

“It was a bold decision, as rents were high, but I knew the returns would also be high,” she said.

By 2006, she was successful enough to make another brave move: open a luxury restaurant called the Lan Club, in Beijing. Having learned about the importance of distinguishing herself in the ever-growing restaurant marketplace in China, she invited world-famous designer Philippe Starck (http://www.starck.com/en/) to design the restaurant.

For Zhang, there was a bigger strategy at work: “I was not disheartened when some people said that I threw money away like dirt and 12 million yuan (US $1.92 million) was too much for a design draft. But I got great publicity and brand recognition with this design, far more than what is received by most companies which spend millions of yuan on television advertisements. Not everyone in China can boast of a Starck design in their restaurant.”

In 2007, the company also started cooking meals for airlines flying between China and France, the Netherlands and South Korea. In 2008, it won the bid to be food and beverage provider for the 2008 Beijing Olympics and was named official caterer to the 2010 Shanghai World Expo.

“These international events have given us great confidence in planning overseas expansion,” Zhang said.

The hallmarks of the dining experience at a South Beauty Restaurant include dramatic food presentation, upscale décor, a pleasant dining atmosphere and critically, waiting staff who are informed about the dishes they are serving.

Dramatic food preparation includes cooking food at the table for the diners and serving stir-fried shrimp on a plate with a goldfish bowl filled with live fish.

“I want to change the cheap price and bad atmosphere tag that most Westerners have about Chinese food,” Zhang told China Daily.

She has attracted investors to take a stake in the business and become the second richest female entrepreneur in China, according to the 2011 China Restaurant Rich List.

While the international economic crisis is still damaging growth in the United States and Europe, Zhang still plans to go global. She is looking to initially expand into Asia before moving into Europe and North America.

“Our mission is to promote authentic Chinese cuisine across the world. With (the) Chinese economy growing steadily and its cultural influence gaining, it will not be long before we see some big global Chinese catering companies, much like McDonald’s,” Zhang concluded. And it looks like South Beauty Group wants to lead the way.

By David South, Development Challenges, South-South Solutions

Published: November 2012

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Better by Design in China

In recent decades, China has been known more for its inexpensive manufactured goods than as a producer of high quality products. But this is changing as the country seeks to move up the economic chain.

China’s long-established design traditions were largely overlooked as the country made its breakneck push to become the world’s manufacturing powerhouse. But now Chinese manufacturers want to be known for high-quality designs and products rather than just for cheap-and-cheerful merchandise.

China is a critical lesson for the rest of the global South, and offers much inspiration to any country trying to develop, modernize and eradicate poverty.

The country is the main reason for the dramatic reductions in global extreme poverty rates, and it can be proud of using its average yearly economic growth rate of 10 per cent to lift 440 million Chinese out of poverty – the biggest reduction of poverty in history (The Economist). The strategy of exporting manufactured goods into Western markets at competitive prices has dominated the past 20 years.

But China faces a dilemma as other nations in the global South are moving into this niche. It needs to quickly become a high-value nation, with unique products and designs generated in the country.

Luckily, a renaissance in Chinese design in the last five years has been gradually grabbing the attention of the world’s creative community.

Innovative Chinese designers are creating home furnishings and interiors that are being snapped up by European companies.

The Italian kitchen utensil design company Alessi turned to eight Chinese architects – including Ma Yansong and Yung Ho Chang – to design a range of trays called (Un) Forbidden City. The architects’ designs were manufactured in Italy – a reversal of the pattern that has dominated for the past 20 years.

The architects drew on Chinese traditions and 21st century technologies to design the trays. One was made using a 3D scanner which captured images used to make a mould.

The drive to change and transform China’s global economic role was promoted in 2011’s Beijing International Design Week (http://www.bjdw.org/en/), with its theme of transforming “Made in China to Designed in China.”

“When you have so much of a manufacturing base in one place, it’s natural that people start thinking about how to climb the value chain,” Philip Tinari, director of Beijing’s Ullens Centre for Contemporary Art (UCCA) (http://ucca.org.cn/) – a champion of new artists and designers – told howtospendit.com.

“Chinese design has become something to rally around and, unlike art, enjoys great official support because it’s a way of improving China’s long-term economic position, as opposed to expressing thoughts about what’s been going on.”

Other Chinese designers grabbing attention include Chen Xuan, who makes tables; chair-maker Gui Yang; Li Bowen, a maker of wicker chairs; and Ge Wei, a maker of jewellery boxes.

Designer Huo Yijin makes contemporary tea trays, using heat-reactive lacquer coating to create dazzling effects.

“Users can see the wonderful effect of water and temperature reacting on the tea trays when they drink Kungfu tea in the traditional way,” Huo explained.

Jingdezhen, Jiangxi province – a city that has been making ceramics since the Ming Dynasty (1368–1644) – is now attracting craftspeople from around the world looking to tap into its expertise and skill. One attraction is Mr Yu’s Big Ware Factory. Its unparalleled ability to create giant-size pottery is a design niche with much potential.

Many foreign creatives are being drawn to China for its can-do attitude and the ability to break with conventions stifling creativity in the West. The next five years could see the world’s design centre of gravity shift eastwards again.

By David South, Development Challenges, South-South Solutions

Published: November 2012

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

Follow @SouthSouth1

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Africa to Get Own Internet Domain

Africa is in the midst of an Internet revolution that is set only to accelerate. The continent is one of the last places to experience the information technology revolution that has swept the world in the past two decades.

Africa has been at a disadvantage for several reasons, the most basic of which has been the lack of bandwidth capacity available from the undersea cables that connect other continents to the Internet. A map showing the world’s undersea cable links says it all: the majority of traffic goes between Europe and the United States (http://www.telegeography.com/telecom-resources/telegeography-infographics/submarine-cable-map/).

But this is changing: a glance at recent developments with the launching of the Seacom, EASSy, MainOne and other cables shows a continent getting better connected by the year (http://manypossibilities.net/african-undersea-cables/).

With seven out of the 10 fastest-growing economies in the world between 2011 and 2015 projected to be in sub-Saharan Africa, the conditions are ripe to grow African Internet businesses. For example, Ghana, with its booming information technology sector, boasted 13 percent economic growth last year, among the fastest in the world.

In eight of the past 10 years, sub-Saharan Africa has grown faster than Asia (The Globe and Mail).

While Africa has come late to the Internet party, the continent can benefit from two decades of experience elsewhere to avoid making the mistakes others have. Africa can upload tried and tested Internet platforms and can also create new, Africa-specific platforms that tackle the continent’s own needs and challenges.

One of the ways to make the most of the opportunities presented by the Internet is to have an Africa-specific Internet domain name. A domain name (http://en.wikipedia.org/wiki/Domain_name) is the suffix placed after the period in Internet URL (uniform resource locator) (http://en.wikipedia.org/wiki/Uniform_resource_locator) addresses. Common ones familiar to most people who use the Internet include .com (for commercial websites), .org (for non-profit websites and organizations), .co.uk (for British businesses) or .ca (for Canadian organizations).

The dot Africa (.africa) domain name will be available in the next 15 months according to the Internet Corporation for Assigned Names and Numbers (ICANN) (http://www.icann.org/). It is currently reviewing 500 African organizations that have expressed interest in managing the domain name registrations, and will choose one at the beginning of 2013.

Countries such as Kenya and South Africa – two places in Africa with booming information technology sectors – are hoping to make the most of the new dot Africa domain name.

The idea is to use the dot Africa domain name to build a stronger brand for the continent’s Internet that will be bigger than the individual country domain names. Sophia Bekele, executive director of DotConnectAfrica, told CNN the suffixes for individual African countries had proven unpopular during the decade since their introduction.

Her organization found that 80 per cent of African domain name registrants had opted for “.com” or “.org” suffixes, which were price competitive, reliable to register and had wide recognition.

The country-level domain names suffered from being “usually owned by governments, and governments are typically not very good at marketing,” she told CNN.

Bekele’s research found young developers involved in creating local content felt a stronger affinity with the “.africa” suffix than to the “.com” domains. And the new suffix will let companies unify their presence across the continent under a single online brand.

A major benefit of the “.africa” domain will be that proceeds from African domain registrations remain on the continent, rather than flowing offshore. DotConnectAfrica says it plans to reinvest surpluses into developing the African Internet sector.

The African Union Commission (http://www.au.int/en/commission) is also looking to register the .afrique (French language websites) and .afriqia (Arabic language websites).

The AUC’s head of information society, Moctar Yedaly, told CNN the commission’s vision for the .africa domain is not just commercial.

“It may well be a very good business in terms of money generating. If it may generate some revenue we can use for the development of ICT in Africa, then that is all very good, but that’s not my primary goal,” he told CNN. “My primary goal is to ensure the identity of Africa, the image, the culture are well-maintained.”

By David South, Development Challenges, South-South Solutions

Published: October 2012

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.  

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Google Books: https://books.google.co.uk/books?id=zvLBoEfECgUC&dq=development+challenges+october+2012&source=gbs_navlinks_s

Slideshare: http://www.slideshare.net/DavidSouth1/development-challengessouthsouthsolutionsoctober2012issue

Southern Innovator Issue 1: https://books.google.co.uk/books?id=Q1O54YSE2BgC&dq=southern+innovator&source=gbs_navlinks_s

Southern Innovator Issue 2: https://books.google.co.uk/books?id=Ty0N969dcssC&dq=southern+innovator&source=gbs_navlinks_s

Southern Innovator Issue 3: https://books.google.co.uk/books?id=AQNt4YmhZagC&dq=southern+innovator&source=gbs_navlinks_s

Southern Innovator Issue 4: https://books.google.co.uk/books?id=9T_n2tA7l4EC&dq=southern+innovator&source=gbs_navlinks_s

Southern Innovator Issue 5: https://books.google.co.uk/books?id=6ILdAgAAQBAJ&dq=southern+innovator&source=gbs_navlinks_s

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