The black middle class has grown by 30% in the past 12 months, adding another 421 000 black adults to SA's middle-income layer and ramping up the black population's share of SA's total middle class to almost a third.
The inexorable march of black families up the income ladder is evident from the 2005 Amps data, released last month by the SA Advertising & Research Foundation (Saarf).
It shows that far from slowing down, as some analysts have feared, the growth of the black middle class appears to be speeding up in line with the acceleration in economic growth.
This means that the current bout of consumption growth is likely to be more sustainable than anything SA has experienced in past business cycles.
"This data provides one of the most quantitative verifications that there has been a structural change in the SA economy," says Massmart CEO Mark Lamberti, who has for the past four years strategically repositioned the mass market retailer, with brands such as Makro, Dion and Game in its stable, to capitalise on this trend.
The FM defines the black middle income group as blacks in LSMs 7-9. This correlates roughly to average monthly household incomes ranging from R6 444 to R11 864. However, LSM categories are not a direct surrogate for income groups. Each LSM includes a wide range of incomes. What they measure is the possession of durable products and the associated buying behaviour .
The most striking findings are :
- In the period between 2001 and 2004, there were only 300 000 new black entrants to the middle class, but in just the past 12 months another 420 000 have joined. This is growth of 30% in 12 months.
- Blacks now make up almost a third of SA's total middle class.
- Over the past 12 months, LSM 8 experienced the biggest percentage growth in black members for any LSM category - 42,6%.
- Over the same period, LSMs 1-3 experienced a total decline of 802 000 blacks. This equates to 3,4% of the entire black population moving out of these low-level categories in just 12 months.
- LSM 10 experienced a total increase of 18 000 blacks (17,6% growth) in 12 months. However, the total number of blacks in LSM 10 in 2005 was still only 120 000 people or 0,07% of all blacks, whereas a third of all whites (1,3m) are in LSM 10.
Political analyst Lawrence Schlemmer says the LSM data shows rapid growth in consumer lifestyles among the black population - "which is good news". "If interest rates don't rise and economic growth at the current rate continues, the black middle class will enlarge very quickly, doubling every two years or so. This means that in five years' time the black LSM 10 group will be around half the size of the white LSM 10 group - a dramatic change in our socio-economic composition."
The data also shows that blacks' share of the total middle class is rising while that of whites is falling.
Assuming the FM's definition of the middle class as being all people in LSMs 7-9, blacks have raised their share of the total middle class from 28,4% (1,46m blacks) in 2003/2004 to 32,6% (1,88m blacks) in 2004/2005. Over the same period, whites' share of the total middle class fell from 45,4% (2,33m) to 41% (2,36m).
Schlemmer disagrees with the FM's definition of the black middle class. In order to filter out blacks with the occupational, income and living standard levels equivalent to those of the established white middle class, he tends to define those in LSM 9 and below as the "lower middle class" and uses only those in LSMs 9-10 with incomes above R12 000/month as a rough surrogate for the "core middle class".
In percentage terms, LSM 10 has experienced the fastest growth in new black members of any LSM category since 2001 - an increase of over 200% or a total gain of 81 000 people.
LSM 9 has also experienced very rapid growth of 141% or 204 000 more black people over the same period.
But LSM data tells only half the story. Given low interest rates over the past year, the mushrooming of credit and the huge drop in prices of imported semi-durables, durables and electronic goods, it is quite possible that families have shifted into higher LSM categories without in fact becoming any wealthier. It is, therefore, necessary to examine income data as well.
Fortunately, the picture of a burgeoning black middle class conveyed by the LSM data is borne out by the rapid growth in the number of black families entering higher income bands. (See table, page 30).
Over the past 12 months, there was a 31% increase in the number of black adults with average household incomes of R12 000 or more a month.
There was also a 31% increase in the number of blacks with average household incomes ranging from R7 000-R11 999/ month and a 20% increase in the number of blacks in the R4 000-R6 999/month category.
In total, 831 000 blacks moved up into these income bands over the past 12 months.
At the same time, LSMs 1-3 experienced a total decline of 802 000 black members (3,4% of the entire black population), suggesting a huge flight from poverty, though there are many without any income at all.
These results are a little less impressive if the changes are studied solely by income group.
Using this approach shows that about 600 000 black people (or 2,6% of the entire black population) moved out of the R2 499 or less a month income band over the past 12 months. Of these, nearly all (533 000) moved off the lowest rung - households earning under R899/month. This suggests that social grants are what is making the difference at this level.
The result of black households increasingly entering income ranges that were once almost exclusively white has been a dramatic increase in the black consumer base in various product types.
Between 1993 and 2003, though the demographic composition of the population remained more or less the same, black households' contribution to total household expenditure increased from 36% to 46%, making blacks the country's biggest consumer base.
By far the biggest contributor to total black earnings between 2001 and 2003 was the black middle class, contributing 60% - or R16bn of the R27bn - earned by blacks over this period.
With earnings a good proxy for expenditure, it is fair to say that the emerging black middle class is largely responsible for the huge surge in expenditure attributed to black households over the past few years.
A Deutsche Bank report shows that between 2001-2004, the number of black people in LSMs 7-9 who bought satellite TV (DStv) more than doubled while there was no change for other race groups. Black middle class purchases of new furniture were up 97%, compared with less than 40% among the rest of population, and the number who bought a cellphone was up 54%, compared with only 36% more among the rest.
Retailers have been observing this phenomenon first hand. In its latest annual report, Edcon noted that "an increasingly affluent black consumer has emerged through the normalisation of society as a result of employment equity and black economic empowerment initiatives. As a consequence, retailers have benefited from the upward mobility and aspirational spending of the previously disadvantaged."
Edcon executive manager (investor relations) Tessa Christelis feels that this trend "still has a long way to run".
Together with the shift of people out of lower, subsistence-level LSM bands into consumer bands, the aspirational spending is part of a structural change to the economy that will underpin Edcon's growth over the next few years.
Edcon expects the rate of retail sales growth to slow next year (mainly because of base effects), but still forecasts growth to be positive, provided there are no external shocks to the economy.
Merrill Lynch economist Nazmeera Moola also believes the Saarf data has positive implications for economic growth and the continuation of the consumer spending boom.
She notes that "a large chunk of SA's overall GDP growth is currently due to consumer spending, and the Saarf data shows that it is more than just a debt binge that is driving this growth.
"Yes, debt levels have risen sharply," she says, "but interest rates have also fallen a great deal. The more interesting story is that income levels are also rising sharply. This makes the current bout of consumption growth more sustainable than we have seen in past economic cycles."
The main risk to this growth is a sharp rise in interest rates since the new black consumer has probably taken on debt in order to accumulate a number of assets in a short space of time. However, a surge in rates is increasingly unlikely.
Lamberti is also bullish : "My confidence is unwavering: the SA economy and consumer are in great shape."
