Emerging Markets / July 15, 2016

Catering to the Expanding Middle Class

Developing Nations Push for the Middle Class

The world’s economic outlook can at times seem uncertain when events such as the Brexit, Asia’s manufacturing slowdown, and lower petroleum costs create financial headwinds. Nevertheless, governmental actions and social trends present a favourable outlook regarding the expansion of the worldwide consumer class during the 21st century. Managed for decades as manufacture and export economies, large developing nations, such as India, China, and Brazil, welcomed the 21st century without a strong middle class. However, several of these now-mature economies are purposefully advancing the creation of a large urban class with substantial purchasing power.

During the 1990’s, India was one of the first countries to launch an official middle class expansion campaign as a motor for its own economy. Even though substantial growth has taken place over the last 25 years, India’s middle class today has not attained the size or purchasing power seen in similar economies. Nevertheless, other nation have undertaken similar policies as their populations become older and increasingly urban. Retired city dwellers exert a natural pressure on governments to increase the size of the middle class given that, as labour force participants and taxpayers, they will help sustain the senior citizenry. For example, the middle class in Brazil and China has advanced significantly over the last decade. Both countries have achieved an average yearly income of $10.000 USD for the middle class, these empowered social groups now represent approximately a third of the national wealth in China and Brazil respectively.

Such policies have become increasingly important as a mechanism to mitigate the effects of a global slowdown. The new middle class provides a safety net to the BRIC economies whose exports have been affected. For example, the Chinese government expects to sustain its annual GDP growth rate above 5% in spite of the global headwinds by empowering its domestic market. An essential element of this initiative includes the recent lifting of the 35 year-old restriction known as the One-Child policy. This policy measure by the government in Beijing reflects the reality of a transformed citizenry that is ready to become part of the global demand for consumer goods.

New Consumers & New Tastes

The ongoing economic empowerment in Asia and Latin America equates to the formation a larger consumer class with increasingly sophisticated preferences and tastes. Likewise, this new middle class has the capacity to purchase foreign goods and might eventually attract products emblematic of high-income consumers. For example, what would happen to cocoa bean prices if hundreds of millions of Indian middle class consumers developed a taste for Belgian chocolate bars? Similarly, it is said that Colombian ambassadors to Beijing dream with the thought of “what if everyone one of the 1.3 billion Chinese citizens developed a taste for Colombia’s coffee”. Food and agriculture is the most concerned industry with the global growth of a new consumer class because everyone must eat and most enjoy eating well. Captivating the imagination of this upcoming consumer class represents a unique opportunity to shape global production and commerce towards emerging markets.

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