Growing Middle Class and Pakistan Economy

1. Implications of Growing Middle Class for
Pakistan’s Socio-Economy
Dr. Vaqar Ahmed
Sustainable Development Policy Institute

2. Global GDP Growth 1961 - 2010
10
8
6
% Growth
4
2
0
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
-2
-4
-6
Middle income countries High income countries
Low income countries
2
Middle income countries are now drivers of global growth

3. Regional Comparison of GDP Growth
10
8
6
4
% Growth
South Asia
2 High income
World
0
1977
1986
1971
1974
1980
1983
1989
1992
1995
1998
2001
2004
2007
2010
-2
-4
-6
3
South Asian has grown at a faster pace

4. Household Consumption Expenditure
12
10
8
6
% Growth
South Asia
4
High income
2
World
0
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
-2
-4
-6
4
Rising growth shows in higher consumption expenditures

5. Pakistan: Changes in Population Structure
Labour force
growth higher
than population
growth
Increasing
working age
population
5

6. What makes middle class important?
• 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
6

7. What makes middle class important?
• 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
7

8. What makes middle class important?
• 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
8

9. How big is middle class in Pakistan?
Method 1: Expenditure from PPP $2 to $20 per person per day
Class Proportion (%)
Lower lower (< $1.25) 21.3
Lower ($ 1.25-2) 34.8
Lower Middle ($2-4) 32.4
81.5
Middle Middle ($4-10) 9.8 million
people
Upper Middle ($10-20) 1.3
Upper (>20) 0.4
9

10. How big is middle class in Pakistan?
Method 2: Computation by Weighted Composite Index
Class Categorisation Proportion (%)
Lower lower Destitute 41.9
Middle lower Aspirants 23
Upper lower Climbers 15.8
Fledgling middle
32.5
Lower middle class 8.5
million
Hard-core
people
Middle middle middleclass 4.3
Upper middle Elite middle class 6
Upper Privileged 0.4
Source: Dur-e-Nayab (2011)
10

11. How big is middle class in Pakistan?
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 Urban: 22.6m
Middle middle 8.1 1.6
Upper middle 12.3 1.3 Rural: 9.8m
Upper 0.9 0.1
The middle class is an urban phenomenon – lives and works in cities 11

12. Occupational Proportion in Middle Class (%)
Lower Middle Upper
Occupation Middle Middle Middle
Armed forces 1.1 0.6 1.3 Dominant
Senior Officials 2.9 8.2 20.7 presence in civil
Professionals 18.3 15.7 26.4
service
Technicians 19.3 14.2 21.3
Clerks 14.5 11.8 12.9
Service /retail 30 28.9 17.1
Agriculture 5.9 8.6 0.1
Crafts 2.6 5 0
Plant operators 2.1 3.1 0
Elementary
occupations 3.3 3.9 0
Total 100 100 100
The middle class is an urban phenomenon – lives and works in cities 12

13. Occupational Proportion in Middle Class (%)
Lower Middle Upper
Occupation Middle Middle Middle
Armed forces 1.1 0.6 1.3
Senior Officials 2.9 8.2 20.7 Dominant
Professionals 18.3 15.7 26.4
Technicians 19.3 14.2 21.3
presence in
Clerks 14.5 11.8 12.9 engineering &
Service /retail 30 28.9 17.1 medicine
Agriculture 5.9 8.6 0.1
Crafts 2.6 5 0
Plant operators 2.1 3.1 0
Elementary
occupations 3.3 3.9 0
Total 100 100 100
The middle class is an urban phenomenon – lives and works in cities 13

14. Occupational Proportion in Middle Class (%)
Lower Middle Upper
Occupation Middle Middle Middle
Armed forces 1.1 0.6 1.3
Senior Officials 2.9 8.2 20.7
Professionals 18.3 15.7 26.4 Dominant
Technicians 19.3 14.2 21.3
Clerks 14.5 11.8 12.9
presence in
Service /retail 30 28.9 17.1 Services Sector
Agriculture 5.9 8.6 0.1 (53% of GDP)
Crafts 2.6 5 0
Plant operators 2.1 3.1 0
Elementary
occupations 3.3 3.9 0
Total 100 100 100
The middle class is an urban phenomenon – lives and works in cities 14

15. Occupational Proportion in Middle Class (%)
Middle Upper
Industry Lower Middle Middle Middle
Agriculture 6.2 8.9 1.4
Mining 0.8 0.5 0.9
Manufacturing 7.6 9.7 11.6
Power & fuel 2.6 2.6 2.7
Construction 2.5 2.7 2.1 Domestic
Wholesale/retail 25.6 27 15.5 commerce
Transport/commu
nication 4.3 4.8 4.9
Banking &
Insurance 3.6 6.9 9.4
Community
services 46.8 36.8 51.5
Total 100 100 100
The middle class is an urban phenomenon – lives and works in cities 15

16. Proportion of Occupational Status (%)
Occupational Middle Upper
Status Lower Middle Middle Middle
Employer with < 10
employees 1.1 1.6 1
Employer with > 10
employees 1.4 3.9 4
Self employed non- Moving from
agriculture 27.5 27 16.9
wage to self
Paid employee 64.5 60.1 78
Unpaid family employment
worker 0 0 0
Own cultivator 4.7 6.3 0.1
Share cropper 0.3 0 0
Contract cultivator 0.3 0.6 0
Own Livestock 0.3 0.5 0
Total 100 100 100
Barriers to entrepreneurship holding back the middle class 16

17. What does this middle class want?
• 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
17

18. Two facts about education in Pakistan
• Average years of schooling (age 15-19) has not
changed since 1990 (currently at 7.6 years)
• Labour force with tertiary education under
22%
18

19. What about jobs?
Declining
12 Growth, Rising
10 Unemployment
8
Percent
6
4
2
0
GDP growth (annual %)
Unemployment, total (% of total labor force)
19
Education without opportunity

20. Migration Increase Since 1972
Skilled 20
Highly Skilled 16
Highly Qualified 20
0 5 10 15 20 25
% Growth
20
Remittances and Dutch Disease Phenomenon

21. Choices
Currently no space for middle class (physical & intellectual)
Reforms for engaging middle class
21

22. Accommodating Middle Class
The rise in
consumption
The
Opportunities development
and challenges of urban
markets
Backward
Changes in
linking of
consumption
urban with
pattern
rural markets
22
McKinsey 2007

23. Annual Projected Consumption Growth - 2030
16
14
14 13
12
12
% Growth
10 9
8
8 7
6
6
4
4
2
0
23
Emphasis has already shifted from food to durable goods – Choice driven consumption

24. Urban Growth and Management
• 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
24

25. Inclusive Governance for Middle Class
• Infrastructure governance  reform of PSEs
• Social sector governance  18th Amendment
• Legal and judicial reforms for inclusive markets
• Efficiency of public expenditure  results
based management
25

26. Thank You
vaqar@sdpi.org
www.sdpi.org
26