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Rising Middle Class Running Out Of Road

The middle class may be on the march in Rwanda but blackouts and potholes are its greatest fear.

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In Kinyinya, a growing residential area in North East Kigali—the Rwandan capital, entrepreneur Charles Ashimwe, is testing a new construction model for homes.

The model, explains Ashimwe, is one big house divided into two smaller houses by a wall. Each house will have a garden, parking for two cars, two bedrooms, seating room, kitchen, two toilets, running water and prepaid electricity.

Ashimwe’s approach is new because, usually, Rwandans people take pride in big houses, big land and big cars.

This love of big things, Ashimwe says, is dying out and more people are looking for property that suits their needs and pockets. This makes Ashimwe’s model attractive to the new rising middle class.

Rwanda is witnessing a boom in the middle class—the class of salaried elites and owners of small and medium enterprises—a sign of a society on the move, according to a new report by the African Bank of Development (AfDB).

The report, The Middle of the Pyramid: Dynamics of the Middle Class in Africa, shows that the number of middle class Africans has tripled over the last 30 years to 313 million people—that’s more than 34% of the continent’s population. It attributes the increase in size and purchasing power of the African middle class to strong economic growth and a move towards salaried jobs and away from agriculture.

In the 1980s and early 1990s, the report says, recruitment into the middle class resulted in a small percentage of poor households becoming better off and entering the middle class. This trend, it adds, accelerated slightly during the period 2000 to 2010 when more poor households moved into the middle class. At the same time, the 2000s witnessed a recruitment process from the rich class into the middle class, implying a slight improvement in income inequality. However, income inequality in Africa remains very high. About 100,000 Africans had a net worth of $800 billion in 2008 or about 60% of Africa’s GDP or 80% of sub-Saharan Africa’s.

In Rwanda, the rise of the middle class is driven by consistent sound economic growth and a stronger private sector capable of creating jobs and paying good wages. Per capita income increased from $220 in 2000, to nearly $600 in 2011.

Poverty levels have also gone down significantly and foreign direct investment (FDI) has increased at a faster rate. In 2011, Rwanda expected $550 million worth of private investments from $380 million in 2010.

This means a larger middle class in Rwanda—an attraction for banks, insurance companies, housing developers, telecoms, retail stores, hotels, bars and restaurants.

So far, two of Kenya’s largest banks—Kenya Commercial Bank (KCB)—the largest in East Africa in terms of assets and Equity Bank—the largest in terms of bank accounts—have opened subsidiaries in Rwanda to tap into the growing demand for luxury lifestyles. Home-grown banks like Banque Populaire du Rwanda (BPR) and Bank of Kigali have also started designing loan products targeting the middle class.

There is a growing partnership between banks and retail stores to allow bank customers and staff to access goods such as household items on credit. This partnership is equally boosting retail stores and manufacturers.

Kenya’s retail giant, Nakumatt, which opened its first store in Rwanda in 2008, has opened a second outlet in Kigali to take advantage of this growing middle class.

Electronic equipment manufacturers such as Samsung, LG, HP, Nokia and Apple have all opened stores in Kigali and are impressed with sales so far. Visa, the payment-processing giant has also entered into a partnership with the Rwandan government to introduce electronic and mobile payment systems and internationalize Rwanda’s ATM network.

But the growing demand for goods and services is putting strain on housing, roads, water and electricity supply.

In Kigali, which accommodates one million people, demand for housing units is enormous. It is estimated that 10,000 houses are needed each year, but fewer than 2,000 are being built. This has pushed rents up.

Rwanda also faces a shortage of electricity, which is hampering this growth. Power supply is around 100 megawatts, but the government has plans to generate 1,000 megawatts by 2017. It would be wise to hurry up.

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