growing middle class and pakistan economy

Dr. Vaqar AhmedSustainable Development Policy Institute

Implications of Growing Middle Class for Pakistan’s Socio-Economy

2

Global GDP Growth 1961 - 2010

19611965

19691973

19771981

19851989

19931997

20012005

2009

-6

-4

-2

0

2

4

6

8

10

Middle income countries High income countriesLow income countries

% G

row

th

Middle income countries are now drivers of global growth

3

Regional Comparison of GDP Growth

19711975

19791983

19871991

19951999

20032007

-6

-4

-2

0

2

4

6

8

10

South AsiaHigh incomeWorld%

Gro

wth

South Asian has grown at a faster pace

4

Household Consumption Expenditure

19711974

19771980

19831986

19891992

19951998

20012004

20072010

-6

-4

-2

0

2

4

6

8

10

12

South AsiaHigh incomeWorld

% G

row

th

Rising growth shows in higher consumption expenditures

5

Pakistan: Changes in Population Structure

Labour force growth higher

than population growth

Increasing working age population

6

• Middle class: – Is a precondition of stability in the social

structures– Is a measure of mitigating inequality in a society

• Easterly (2001): Nations with a large middle class tend to grow faster– English middle class of 18th & 19th century– Today’s China and India

What makes middle class important?

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• Collier (1999): Middle class forms alliance with lower classes in order to demand an inclusive political system

• Acemoglu (2003): Decisive voters in democracy are from middle class

• Bannerjee (2007): middle class is a source of new entrepreneurs and this class stresses on accumulation of human capital and savings


8

• Warning:

– Basu (2003): If venues for channeling middle class human capital and savings not provided, then tendency towards consumption expenditure puts sustainability of growth in danger


9

How big is middle class in Pakistan?

Class Proportion (%)

Lower lower (< $1.25) 21.3

Lower ($ 1.25-2) 34.8

Lower Middle ($2-4) 32.4

Middle Middle ($4-10) 9.8

Upper Middle ($10-20) 1.3

Upper (>20) 0.4

81.5 million people

Method 1: Expenditure from PPP $2 to $20 per person per day

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32.5 million people

Method 2: Computation by Weighted Composite Index

Class Categorisation Proportion (%)

Lower lower Destitute 41.9

Middle lower Aspirants 23

Upper lower Climbers 15.8

Lower middleFledgling middle class 8.5

Middle middleHard-core middleclass 4.3

Upper middle Elite middle class 6

Upper Privileged 0.4Source: Dur-e-Nayab (2011)

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Method 2: Computation by Weighted Composite Index

Class Urban (%) Rural (%)

Lower lower 23.6 55.2

Middle lower 21.8 23.9

Upper lower 20.8 12.3

Lower middle 12.5 5.7

Middle middle 8.1 1.6

Upper middle 12.3 1.3

Upper 0.9 0.1

The middle class is an urban phenomenon – lives and works in cities

Urban: 22.6m

Rural: 9.8m

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Occupational Proportion in Middle Class (%)


OccupationLower Middle

Middle Middle

Upper Middle

Armed forces 1.1 0.6 1.3Senior Officials 2.9 8.2 20.7Professionals 18.3 15.7 26.4Technicians 19.3 14.2 21.3Clerks 14.5 11.8 12.9Service /retail 30 28.9 17.1Agriculture 5.9 8.6 0.1Crafts 2.6 5 0Plant operators 2.1 3.1 0Elementary occupations 3.3 3.9 0Total 100 100 100

Dominant presence in civil

service

13




Middle Middle

Upper Middle


Dominant presence in

engineering & medicine

14




Middle Middle

Upper Middle


Dominant presence in

Services Sector (53% of GDP)

15



Industry Lower MiddleMiddle Middle

Upper Middle

Agriculture 6.2 8.9 1.4Mining 0.8 0.5 0.9Manufacturing 7.6 9.7 11.6Power & fuel 2.6 2.6 2.7Construction 2.5 2.7 2.1Wholesale/retail 25.6 27 15.5Transport/communication 4.3 4.8 4.9Banking & Insurance 3.6 6.9 9.4Community services 46.8 36.8 51.5Total 100 100 100

Domestic commerce

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Proportion of Occupational Status (%)

Barriers to entrepreneurship holding back the middle class

Occupational Status Lower Middle

Middle Middle

Upper Middle

Employer with < 10 employees 1.1 1.6 1Employer with > 10 employees 1.4 3.9 4Self employed non-agriculture 27.5 27 16.9Paid employee 64.5 60.1 78Unpaid family worker 0 0 0Own cultivator 4.7 6.3 0.1Share cropper 0.3 0 0Contract cultivator 0.3 0.6 0Own Livestock 0.3 0.5 0Total 100 100 100

Moving from wage to self employment

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• They want: – Education– Jobs

• Nayab (2011): – When compared to its neighbours Pakistan has a

bigger middle class– The middle class in Pakistan has actually grown

with time

What does this middle class want?

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• Average years of schooling (age 15-19) has not changed since 1990 (currently at 7.6 years)

• Labour force with tertiary education under 22%

Two facts about education in Pakistan

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What about jobs?

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

0

2

4

6

8

10

12

GDP growth (annual %)Unemployment, total (% of total labor force)

Perc

ent

Education without opportunity

Declining Growth, Rising Unemployment

20

Migration Increase Since 1972

Highly Qualified

Highly Skilled

Skilled

0 5 10 15 20 25

20

16

20

% Growth

Remittances and Dutch Disease Phenomenon

21

Currently no space for middle class (physical & intellectual)

Reforms for engaging middle class

Choices

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The rise in consumption

The development of urban markets

Backward linking of urban with rural markets

Changes in consumption

pattern

Opportunities and challenges

Accommodating Middle Class

McKinsey 2007

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Annual Projected Consumption Growth - 2030

Food

Housing

Apparel

Household ite

ms

Transport

Health ca

re

Education

Communications

0

2

4

6

8

10

12

14

16

46

78

9

1213

14

% G

row

th

Emphasis has already shifted from food to durable goods – Choice driven consumption

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• Births and migration will drive growth• Labour market shortages: – Design– Engineering– Middle management

• Localized savings instruments• Opportunity for niche cities• Backward linkages with farm activity– Diversification towards higher value addition

Urban Growth and Management

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• Infrastructure governance reform of PSEs

• Social sector governance 18th Amendment

• Legal and judicial reforms for inclusive markets

• Efficiency of public expenditure results based management

Inclusive Governance for Middle Class

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