Middle Class Growth and Entrepreneurship Development in Africa – Measurement, Causality, Interactions and Policy Implications

Abstract

The paper is about the role of the African middle class as a base for entrepreneurship development. The key question is what the growth of the African middle class means for the emergence of an entrepreneurial class in Africa. In this context, the «missing middle» in Africa, the gap in small and medium sized companies between microenterprises and large companies, is of interest. So far the theoretical work and the empirical evidence on the relation between middle class growth and entrepreneurship development are quite scarce. First, the main concepts of defining and measuring the African middle class - via income and consumption, assets, vulnerability, and livelihoods - will be discussed. These differences in definition and measurement have implications for the assumed developmental implications of the growth of the African middle class and the growth of an entrepreneurial class. There are so many statements in the literature about the developmental potentials and the impacts of the African middle class. It is argued that the African middle class is a seedbed of entrepreneurship and management staff; a base for start-ups and high tech companies; that it has an impact on market competition and labour mobility; an impact on level and structure of consumption and marketing, on housing, car and finance markets; an impact on local saving, local investment and on a more long-term in- vestment behaviour; a role in developing a new consumer society based on higher quality and branded goods; a role in participation, empowerment and the formation of economic interest groups; a role in the redistribution of income, assets and economic power; that it leads to a widespread use of new technologies and has a tremendous role in technology diffusion; that it is creating space for upward mobility and societal change; that it pushes the transition from survival firms to growth-oriented firms; that it has a role in pushing for more rational economic policies and that it is also demanding public goods and fair taxation; and that it is providing stability to the political regime, etc. Most of these arguments lack so far empirical evidence, and there is tremendous speculation and experi- mentation based on the way of defining and measuring the African middle class and the entrepreneurial class which is coming forth on this basis. A main instrument used for this endeavour is aggregation of some few data over Africa; but this is not enough to draw strong conclusions. Second, the scarce evidence on the assumed role of the African middle class as a seedbed of entrepreneurship and managerial competencies is dis- cussed and evaluated. The main issue is the role of the African middle class in overcoming the «missing middle» of small and medium sized companies. There is a general discussion about Africa’s «missing middle», the assumed gap in terms of small and medium sized companies between the many mostly informal microenterprises and the large public and private companies. It is argued that the concepts of the African middle class used in the literature and the ways of defin- ing and measuring it do not allow a deep investigation of entrepreneurship devel- opment and the identification of a growing entrepreneurial class in Africa. The main reason is that the economic lives of the various segments of the African middle class are so different. Also, the poor and the rich classes in Africa have distinct economic lives which partly overlap with those of lower and upper seg- ments of the African middle class. Third, there is a lack of differentiating the African middle class with regard of the potential for entrepreneurship development, the establishment of entrepre- neurial value systems (education, health, saving and investing), and the role in developing local industries (based on increasing middle class consumption). Any change towards the development of growth-oriented small and medium-sized en- terprises - between survival and micro enterprises at the lower end and large capitalist and conglomerate enterprises at the upper end - is of interest. Most im- portant is to know more about the role of the African middle class in developing growth-oriented enterprises. It is also of interest to see how governments in Africa can support entrepreneurship and management competences based on specific African middle class segments, along with strategies to use the entrepreneurial potential of the poor and the rich classes. The purpose of the paper is to give evidence on the developmental role of the African Middle Class, by focussing on the «missing middle» of enterprises in Africa and the types of entrepreneurship being associated with the growth of the middle class. After the Introduction in Section 1 there is in Section 2 a discussion on Defining and Measuring the African Middle Class: What about Developmental Implications and Prospects? In Section 3 is a presentation on Africa’s Middle Class and the «Missing Middle» of Enterprises: New Potentials for the Growth of Enterprises? In Section 4 there are Conclusions and Policy Recommendations. This is an economists’ view, but much more interdisciplinary work is needed to cover the issues (and this is done in the collection of essays by Henning Melber, Editor, 2016).