Corporate Focus

Why SA’s middle class can make or break the economy

Read Time: 3 min
Instead of the size of SA’s middle class, we should be focusing on the state of it. Dr Jason Musyoka of the University of Pretoria explains why the country’s economic sustainability depends on the success of this disappearing segment of society.

The journey until now

While there is much uncertainty as to what South Africa’s economic future might hold, it’s clear that the country’s growth in GDP terms has fluctuated since the birth of the ‘new’ South Africa.

It began with 2.9% between 1994 and 2000, then rose to 4.3% between 2001 and 2007, and decelerated to under 2% between 2007 and 2019.

Despite the promise of President Cyril Ramaphosa’s new dawn, the growth projections of government and the International Monetary Fund for 2019 are almost on par with population growth (1.2%).

This is a sign of a struggling middle class on which upper middle-income countries such as South Africa rely for meaningful growth and development. But what exactly constitutes the middle class?  

It’s complicated

Who makes up the middle class is unclear the world over, not least in South Africa. What we know is that only a small percentage of South Africa’s population, black and white, are neither poor nor own capital assets which justify any claim of wealth.

They comprise, according to a 2018 report by the South African Government and the World Bank, somewhere around 20% of the population. Yet, two years earlier, a working paper by then-PhD student Anna Orthofer on the South African middle class put it at 40%.

She estimated that 90–95% of all wealth in South Africa was owned by the top 10% of the population, with the (middle) class immediately below them making up 40% of the population and owning a mere 5-10%.

In 2017, 43.8% of all households received at least one type of social grant. 

While the above data sheds some light on the potential size and state of South Africa’s middle class, it obscures a fundamental characteristic of our society – that individuals or families are not as representative of middle class-ness as households are.

To illustrate this, let us turn to household statistics. Firstly, more than half of South African households are made up of two (37.6%) or three (14.2%) generations. Nuclear households, which are synonymous with a traditional family, make up 39.1%.

Secondly, if we leave out the poor and vulnerable households, the following picture emerges: two thirds (70%) of all South African households use public healthcare not by choice, but because they cannot afford private healthcare. And in 2017, 43.8% of all households received at least one type of social grant.

All this points to the fact that South Africa is not a middle-class society with a small working-class, it is a working-class society with a small middle-class.

How to grow our middle class

To an important extent, South Africa’s development policy aims to address the plight of the poor and the working class.

While this is not a misplaced objective, it fails to recognise that both white and black middle classes are trapped in high levels of consumption debt, that their cost of living is accelerated by poor public services, and that public debt rests on the back of this highly taxed class.

The country’s economic sustainability inevitably depends on the economic performance of the middle class, and deliberate interventions are therefore necessary to bolster it. To set the ball rolling, national debates on poverty should broaden from poverty alleviation to middle-class formation.

Poverty alleviation is tokenistic in scope, while middle-class formation seeks to remove constraints that prevent upward social mobility. Another concern is that, unlike most other upper-middle-income countries, South Africa’s public wages are almost twice as high as private-sector wages.

This anomaly encourages a scramble of sorts for public-sector jobs, notwithstanding the fact that the public sector is not a productive sector. Rebalancing wages in the two sectors is likely to disperse most of the black middle class to the private sector, promote entrepreneurship and consequently lead to private-sector-led growth.

In the end, this is one way to secure the future of the middle class, which should be non-negotiable.

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