Developing world's burgeoning middle class risks being wiped out in coronavirus crash

Boshir Ahmed slowly steers his rickshaw – a three-wheeled passenger cart – towards a potential customer in Dhaka, the capital of Bangladesh.

Schlepping Dhakaites through the city’s overcrowded and polluted streets  is normally a job for men hailing from the slums, clad in lungis and sandals.

Mr Ahmed, with his pressed t-shirt and khaki pants sticks out like a sore thumb. He calls the passenger “sir” – another anomaly – and when it comes to negotiating the price he hesitates before blurting out “60 taka”. It is clear he has no idea of the standard fare.

Mr Ahmed has only recently become a rickshaw puller, he later confesses. He used to be a manager in a restaurant but like many other white-collar workers in Bangladesh he lost his job during the lockdown that began in March.

He was then left with no choice but to take up rickshaw pulling.  The world's poorest have been hard hit by Covid-19, which the World Bank estimates could push up to 71 million people back into extreme poverty in 2020.

But as well as reversing years of poverty reduction, the pandemic has also punctured the growth of the developing world’s burgeoning middle class. Over the last decade the middle class globally has been expanding rapidly, according to Homis Kharas, a senior fellow at the Brookings Institution and the co-founder of the World Data Lab.

“By my calculations, over the last decade, around 100 to 150 million people per year were entering into the middle class,” he said, defining this group as those earning between $11 and $20 a day.

An expanding middle signals development, said William Hynes of the Organisation for Economic Co-operation and Development (OECD). A middle class grows when “fewer people are working in agriculture, when more people shift to manufacturing, to industry and then services”, he says.

In turn, middle classes drive economic growth. “These are the people creating all the jobs; these are the people buying all the goods – the fridges and the televisions,” said Mr Kharas.

“These are the people doing all the innovation, which, above anything, propels growth,” he said.

A bigger middle also fosters democracy. Middle-class Kenyans, for example, are more likely to support democracy and vote for the opposition than their poorer and less educated counterparts, according to a 2015 study by Nic Cheeseman, a political scientist from the University of Oxford. 

Now, the pandemic threatens to shrink middle classes and reverse this progress. “What appeared to be an inevitable and almost irresistible growth of the middle class seems to have been arrested and is declining for the first time in a very long time,” said Mr Kharas.

Covid-19 and its fallout have dealt a double-blow to economies in many low- and middle-income countries. Before the first cases of Covid-19 even appeared, lockdowns elsewhere hit these nations, said Mushfiq Mobarak, an economist from Yale University.

A lot of people in less developed countries rely on remittances sent back by family members from abroad .

“Over 20 per cent of the Philippines’ GDP comes from remittances; for Bangladesh it’s 10 per cent,” he said.

These incomings froze when destination countries in the Middle East and Europe locked down.

As the pandemic advanced, many developing countries, such as Bangladesh, Kenya and Nigeria, shut their borders and ordered their citizens to stay at home.

Consumption fell and millions were left out of work.  In Nigeria, the external shock from nose-diving oil prices has been compounded by a lockdown that forced shopping malls, markets and schools to close their doors.

As a result, the country is slipping into recession, according to the International Monetary Fund (IMF).  “I’m now a private security guard,” said a Nigerian teacher, who did not wish to be named. His salary stopped at the beginning of lockdown, back in March, because the school he works in failed to collect fees from parents. His new job is “a necessity for survival,” he said.

Africa’s largest economy, Nigeria has a larger middle class than many other African countries. The majority of the world’s recent up-and-comers are in Asia, though; in countries like Bangladesh, India, Indonesia, Pakistan, and Vietnam, said Mr Kharas.

“In Africa, the numbers are still quite low, but that is because they started at such a low base.”

As a result, the economic shock of Covid will hit Africa’s middle class hardest, he said. Growing at a slower rate, the structural changes that come as the middle class expands are yet to take root in Africa.

In most of the continent’s countries, for example, urbanisation is still low, as is the level of education. It is these advances that create resilience, buoying middle classes through sticky patches.

Thirty-one-year-old Benjamin Zantsi grew up in Khayelitsha, a township outside Cape Town, South Africa. Living in a government house, he shared a single bedroom with his mother and three brothers.

“It’s a big thing where I’m from to graduate high school,” he says. Benjamin went to university, moved out of the township and started working in marketing, running training sessions at summer camps for children alongside his day job.

Since the Covid-19 pandemic started, both income sources have dried up. “I’m back in the township, living with my mother and working as a delivery driver,” he explains. “It’s depressing, but I’ve lifted myself out of hardship before, I can do it again.”

While governments in rich countries are helping middle classes ride out the storm, few low- and middle-income countries can afford to emulate them.

The government of Bangladesh announced loans for small businesses but, like many others, Zainul Abedin, who owns a barbershop in Dhaka, did not even apply. He knew the chances of receiving the cash were next to none.

When he set up his business a year and a half ago it did so well that he even bought a fancy new fridge.

His friends and neighbours marvelled at it: the fridge was a sign he was coming up in the world.  But under lockdown he was forced to shut up shop. Even as measures designed to curb the spread of Covid-19 eased, few people came for haircuts. Mr Abedin’s savings quickly ran out.

Now, to get by, he flogs potatoes and onions on the street, leaving him with a tenth of what he used to earn.

“It’s bad but it could have been worse. I am alive, my family is healthy,” he said. “The shop will open soon.”

This may be wishful thinking, according to Mr Hynes. “A V-shaped economic recovery seems unlikely in OECD countries and it’s even harder to see it happening in poor countries.”

In Kenya, a booming tourism industry has pulled many out of poverty over the last few decades, forming a would-be middle class. Before Covid-19, Douglas Kikitu, a tour guide and driver from Ongata Rongai, was earning $10 a day, and up to $30 in high season, he told The Telegraph.

Mr Kikitu had just taken out a loan to buy a new van when the pandemic hit. High season was about to start: “I was expecting lots of high-paying customers to come, but then it turned out to be the opposite – no one came, not even the budget travellers.”

After months of not working, he started selling potatoes. So far, the bank has stayed away but Mr Kikitu has taken on more debt, borrowing money from friends to convert his tour van into a vegetable truck. Paying it all back will be tough. With his new veg-selling business, he makes just $3 a day, sometimes less.

His daughter and two younger children were studying online but he ran out of money for the fees. When the schools and colleges re-open, he will need to take out another loan. “The tourists won’t be back this year, or next,” Mr Kikitu added, “if they come back at all.”

In south Asia millions have flooded out of cities back to their home villages, returning to the agricultural work that they, or their parents, left behind. If this reversal becomes permanent, it will undo years of development, Mr Mobarak said.

A drawn-out stay in the countryside, away from the comparatively better services of the cities risks a long-term impact, the economists argued.

With lower quality schooling, or no schooling at all, the children of these middle-class returnees stand to achieve less and, therefore, earn less in the future.

In Dhaka, Mr Ahmed is all too aware of what is at stake. “I still have to maintain my standard of living,” he says, explaining why he pedals his rickshaw for as long as possible each day.

“My daughter still has to go to school and buy books. She doesn’t know what I do for a living now. That’s why I leave the house everyday wearing my old work clothes,” he says.

For now, like many others around the world, Mr Ahmed is clinging on to his hard-won place in the middle, but as for how long he can continue, he is not sure. 

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