Shifting wealth of nations – what is overlooked
Middle class spending is crucial for economic growth. So now, with Western middle classes in debt and distress, many economists look to the new emerging-market middle class as the foundation for a new era of global prosperity.
Middle class spending power per capita in the Gulf is, for some reason, often overlooked by Western companies.
Last year 70 million people in developing countries joined the middle class, with incomes between $6,000 and$30,000. It is estimated that within 20 years they will surpass their Western pears when it comes to global spending power. The focus is mainly on Asia and it is estimated that in about a decade they will pick up the slack left by overspent America. Emergency market spending is in fact already bolstering the balance sheets of many Western firms.
Needless to say the worlds is focusing on China and India due to its huge populations as well as rapidly rising economies and middle classes. Correct if you look at the amount of people. But by looking at the issue that way we overlook a very potent and prosperous group of people.
When it comes to per capita spending I’m certain that the middle classes in Saudi Arabia and the other Gulf countries not only earn more but also spend far more than their Asian counterparts. It’s not for nothing many middle class Indians chose to work in the Gulf, despite the fact that they are paid less than the locals. Salaries are higher and you pay no income tax in the Gulf.
Shopping is a top leisure activity and when the weekend starts the malls are filled with people who literally shop until they drop. A woman who works in a Chanel shop in the area told me an average customer spends an absolute fortune every time they come to the shop. And the same goes for more expensive items like cars, jewellery and electronics. Considering the importance the Chinese put on saving money, I would be very surprised if middle class people in China, with the exception of some mega rich, spend that much.
The world, certainly multinationals, are already managing the economic spending shift to Asia very well. But quite a few Western companies are forgetting about Saudi Arabia and the Gulf, which in my opinion could prove costly especially for companies selling expensive consumer goods.
A large amount of Asian and Middle Eastern households have incomes today that position them just below the global middle class threshold and so increasingly large numbers of them are expected to become middle class in the next ten years.
Emerging-market leaders know that the Western system created the worldwide boom of the last quarter century that ended when Lehman Brothers collapsed 18 months ago. Now the boom has moved to emerging markets, and their leaders will increasingly choose to alter Western models to suit their countries. Consequently the fact that all eyes are on Asia and the Gulf forgotten could turn out to be a fatal mistake. The new emerging middle classes are supporters of globalization but highly nationalistic. And there is a vast difference between nationalism in China and, say, Kuwait.
Back to emerging middle classes in general, we can conclude that the Chinese bought more cars than Americans last year, and that India has as many Internet users as the U.S. Also it is estimated that by 2030, more than nine out of every 10 mobile phones will be owned by people in the developing world. Coca-Cola actually forecasts a doubling of worldwide revenues to $200 billion over the next decade, thanks to another 1 billion people expected to join the middle class by 2020. So Western companies who haven’t yet focused on developing countries middle classes should jump on the band waggon swiftly and not overlook the Gulf.
(photo: flickr – Lars Plougmann)
Tags: Asia, Chanel, China, emerging nations, growth, India, Kuwait, middle class, prosperity, Saudi Arabia, shifting wealth, spending power, spending power per capita, the Gulf, West
March 8th, 2010 at 20:53
Hi Catarina,
As always very interesting, I have read a couple of articles regarding this topic, Here is a segment of one of them where they make a similar analogy with Brazil's growing middle class:
"We still don't know how sustainable the rise of the new middle classes will be," says Brazilian political scientist Amaury de Souza. And to the extent that the new middle class is precarious, its ability to effect political change will be, too. Indeed, some development economists argue that the poor will be a greater force for social change. There is no middle-class parallel to the broad push for land reform among rural leaders in China. They are the agitators, unwedded to the status quo. The developing world's new consumers may have unleashed tremendous new energy at the checkout counter. But their ability to become a force for better government, greater freedoms, less corruption, and more economic liberty is much less certain.
makes me wonder if the overspending of this new middle class around the world can sustain the pressure of supporting the economies of the world..
March 8th, 2010 at 23:37
Wonder how you infer that "The new emerging middle classes are supporters of globalization but highly nationalistic. " ?
March 9th, 2010 at 00:07
Trouble is, in the Gulf they're not making any money they're just pumping it out of the ground.
March 9th, 2010 at 14:17
Another thought-provoking post, Catarina. There's no question that the Gulf countries have enormous wealth, and they spend it on luxury items – hence the presence of virtually every luxury brand here. I suspect the reason for the focus on the BRIC countries is simply that the product of their enormous populations and their income makes them so attractive (even if the incomes are a great deal lower than the Gulf ones, the population size differential is enormous). In fact, due to the size of these populations, I believe you'll find there are more Millionaires in India today than the entire population of any Gulf country, and China's not all that far behind when it comes to the number of very wealthy people.
For mass products – like mobile phones – the BRIC markets are also hugely important simply because of their numbers. And don't forget that other "sleeping giant" – Africa. I read a statistic the other day showing the per capita income in Africa is significantly higher than China and this, too, is becoming a very attractive consumer market.
March 9th, 2010 at 14:46
Hope the new middle class can. If not the world is really in trouble.
March 9th, 2010 at 14:49
That may not apply to you personally.
March 9th, 2010 at 14:50
Glad we agree Guy.
March 9th, 2010 at 14:52
Am sure there isn't anybody in the Gulf that doesn't wish it was that simple, Barry.
March 9th, 2010 at 15:59
Great post and insight Catarina! While western countries are globalizing their attention is more focused on their own economic sustainability due to the internal financial distress they are enduring. Essentially, stabalization is the prioritized agenda. I found this article which I think you and your readers might find of interest on "The value of China's emerging middle class" from the McKenzie Quarterly (http://www.mckinseyquarterly.com/The_value_of_Chi... but I posted an excerpt below which supports your discussion.
As China's economy has soared at consistently astonishing rates, many global companies have focused on serving the country's most affluent urban customers. When these well-off urbanites were the only consumers with significant disposable income,1 this strategy of skimming the cream from the top made sense. But new research by the McKinsey Global Institute (MGI) highlights the emergence of a far larger, more complex segment—the urban middle class, whose spending power2 will soon redefine the Chinese market (see sidebar, "About the research"). While some companies are already focusing on the evolution of this new class, many others have yet to broaden their vision and thus risk missing a significant opportunity.
March 9th, 2010 at 16:23
Excellent comment Helena!
March 9th, 2010 at 22:02
True post. Although it's shocking how much the rich chinese spend. But the average chinese 'middle class' person (actually in the middle, not middle class) runs a tiny shop, works 14 hours a day and rents a tiny flat. There are so many so poor people – including vast numbers of rough sleepers, i had an early train at one of Shanghai's central stations and virtually had to climb over women with babies sleeping on the pavement cobbles, i felt awful and it was quite a shock, while the city near the Terracotta warriors, Xi'An, a well known tourist destination for Chinese too (travel by train etc is so expensive the average middle class chinese person can't afford to leave the country for holidays, which anyway are just the 'spring festival' (visit home) for most people) had garages people were living in, no windows or anything, but built as blocks of flats (i can't explain very well, those lift-up metal garage doors and one windowless concrete room, onto balconies/walkways) and even completely ruined old houses, roofless and everything, that people were living in; and that's touristville, money town.
March 10th, 2010 at 04:02
Hi Catarina,
As usual an insightful article that reflects your first hand knowledge of the region , especially Saudi Arabia.
It is true that due to oil export a tremendous amount of wealth has shifted to oil countries of the Gulf, like Saudi Arabia. You have a point that many commercial businesses in the West have not fully realized the purchsing power of the emerging middle class in the oil rich countries.
As always your articles are a pleasure to read.
Continued ….
S. Zafar Iqbal
March 10th, 2010 at 04:05
…..Continued .
However, I believe we need to recognize the facts that :
(1) A disproportionately large amount of oil wealth goes right back to the Western countries, such as the US, UK, and France , in the form of payments for the weapons that these countries neither need nor have the know how or the stomach to use.
(2) A large segment of the population in these countries has not benefited from the oil wealth and remains poverty stricken — though hard to believe, it is a fact of life in many remote parts of these countries.
The point is that the "military industrial complex" , and the weapons industries of the developed world are very much aware of these cash gushers and are doing every thing possible to divert the flow of cash to their own coffers.
As I said , your articles are always a pleasure to read.
S. Zafar Iqbal
March 10th, 2010 at 17:18
Seems we agree Maia that the middle class in the Gulf has far more spending power per capita.
March 10th, 2010 at 17:20
Zafar, the points you make are interesting but have nothing to do with the spending power per capita of the middle class in the Gulf.
April 13th, 2010 at 01:45
Hi There, I just spent a little time reading through your posts, which I found entirely by mistake whilst researching one of my projects. Please continue to write more because it’s unusual that someone has something interesting to say about this. Will be waiting for more!
April 14th, 2010 at 11:11
Glad you like it Maureen.
June 29th, 2010 at 02:46
Thx for this information. You are right companies tend to forget the Gulf. Have bookmarked your blog.