Why banking on Kenya’s middle class has destroyed businesses

Vehicles parked outside Truce Lounge along Kiambu Road on Monday, August 30, 2021 [David Njaaga, Standard]

Not so long ago, a car was truly a symbol of status.

However, when the Covid-19 whirlwind plunged thousands of the not-so-rich people into joblessness, a typical car on Nairobi roads was exposed for what it is: a roving ‘kibanda’.

The clean-shaven, dapper, smug-faced individual behind the wheel is little more than a part-time hawker.

With no salary or savings to get them going, hordes of Nairobi’s aspirational middle class quickly converted their car boots into grocery stores, hawking sukuma wiki, cabbages, avocados, tomatoes, osuga and managu on estate roads and major highways.

To many, this looked like a new phenomenon. It was not. Even before the pandemic, many of Kenya’s middle class would occasionally try their hands in peddling.

They would carry mitumba or Pishori rice in their cars to sell to colleagues in the office as part of their side hustle to try and sustain their expensive lifestyles.

“Their salaries alone cannot sustain their big lifestyles,” says Joy Kiiru, an economics lecturer at the University of Nairobi (UoN).

Infographics: The Standard Checkpoint

A doctor employed in a public hospital without a private clinic, for example, is a step away from poverty, says Khamati Shilabukha, an anthropology lecturer at UoN.

The African Development Bank (AfDB), in a 2013 report, identified a “floating middle-class” - for whom a simple shock such as job loss or huge medical bill is enough to impoverish them.

And they comprise close to a third of the country’s middle class population, said the AfDB.

The crippling effects of the Covid-19 pandemic exposed the underbelly of the much-hyped middle class as both paycheck and credit dried up.     

This is a gang of mostly young, educated, urbane and Twitter-voting keyboard warriors who live large on borrowed cash.

The French would call them the petite bourgeoisie because they will go to any length to identify with the extravagant lifestyle of the high bourgeoisie, or the upper-middle class.

They will often have a side business, over-borrow or even cut corners to win State tenders to keep up with the Joneses.

This is a socio-economic class that is neither poor nor rich. 

Johnson Ndenge, commercial director at Pep Real Estate Development Services, says the tag comes with a lot of expectations.

“They should be able to stay in a better place. They should be able to afford food, and basic medical awareness,” he says.

“On housing, the middle class needs to afford a decent house as defined by the government, which should have a basic living room of not less than seven square metres.”

The spending range for the middle class is as varied as the sources you consult. The Kenya National Bureau of Statistics (KNBS) estimates that the middle class in Nairobi spends between Sh46,356 and Sh184,394 per month.

This translates to a daily expenditure of between Sh1,540 ($14) and Sh6,160 ($56).  

AfDB puts the middle class band at a daily expenditure of between $2 (Sh220) and $20 (Sh2,200) while the World Bank estimates it at $10 (Sh1,100) to $50 (Sh5,500) per day.

Dr Shilabukha reckons that unlike before when there was something akin to a distinct middle class in Nairobi, today this social class is too fluid.  

“At some point we had some bit of middle class that was well-defined with some consumerism tendencies,” he says.

Towards the end of the 19th century to mid-20th century, Africans were colonised in the context of the British class system: The monarchy, the working class and the lower class.

The middle class, known as the bourgeoisie, expanded during the Victorian era due to the rapid growth of cities and the economy.

This class consisted of those who had skilled jobs to support themselves and their families. The white-collar professions were the oil that turned the wheels of the cities as they worked in new industries such as railroads, banks and government.

When not working or studying, the Victorian middle class would hold musical evenings, gathering around a piano and singing. Collecting stamps and butterflies as well as photography were popular hobbies for middle-class Victorians.

In pre-colonial indigenous societies, Shilabukha says, there was some element of social stratification mostly based on specialisation.

Thus, some activities such as healing acquired some degree of prestige with some people being elevated to a higher status than others.

If the Nairobi middle class in the 80s and 90s had cars, they would also have their parking spaces. They were not just car owners, but also homeowners.

They lived in townhouses, in estates such as Buruburu, Hurlingham, Lang’ata and South B.

Then in 2003, when Mwai Kibaki became president, credit became available to virtually anyone with a permanent job. A lot of people borrowed to buy second-hand cars.

There was also an uptick in the number of people who were shopping using credit cards.

Digital lenders such as M-Shwari, a platform owned by Safaricom and NCBA Bank and later Fuliza, a type of overdraft by the two firms, only added to the credit-driven consumption.    

Much of this credit, however, was not used to build or buy houses, with the number of mortgages still stuck at under 30,000.

Of the 4,711,664 families in urban areas, slightly over a fifth own their houses, according to the 2019 Census report.

It is even lower in Nairobi with less than a tenth of the households, or 138,976, having a house that they either built, purchased or inherited, according to the report.

Instead, you will spot luxury cars parked in dilapidated, rental estates such as Rongai, Umoja and Embakasi.

Home ownership is a critical feature of the middle class in countries such as the United States.

However, besides noting that middle-class families tend to reside in permanent buildings and own such “modern amenities” as refrigerators, telephones and automobiles, the AfDB report did not consider home ownership as a hallmark of middle-class status in Africa.

Mr Ndenge says it is envisaged that the middle class should be able to own a house as it comes with various benefits including social investment, access to healthcare and safe environment.

Apart from being shelter, Ndenge says a house also provides other benefits such as basic inheritance; a house is also a financial asset that can be sold or used as collateral.

Because a big portion of Kenya’s middle class is floating, they cannot afford to live in some of the high-end apartments that have mushroomed in estates such as Kileleshwa and Kilimani.

Those with mortgages, for instance, were hit hard by the Covid-19 pandemic because of expensive credit.

There was a decrease in the value of mortgages in the market in 2020 by Sh5 billion “mainly due to repayments and decreased mortgage facilities advanced by banks due to effects of Covid-19,” said CBK.

Moreover, bad loans recorded the highest growth at 14.9 per cent (Sh9.2 billion) in the first three months of this year, CBK said.

The common path for initiation into the consumer class is by taking a loan on the strength of your payslip.  Because of their creditworthiness, the middle class have been able to easily access credit.

“They take advantage of that fully, they borrow a lot. Many of them are in debt,” says Dr Kiiru.

A profile of a digital borrower in a 2018 study fit the typical middle class. The study by Financial Sector Deepening (FSD), KNBS and CBK found that a majority of digital borrowers are young men aged between 26 and 35 years.

They have college education and tend to live and work in major urban centres. The debts were used to pay for water, electricity, airtime and bus fare.

But some of them, the report noted, were balancing loans from more than one digital lender. About six per cent of the borrowers used their loans to repay debts.

On M-Shwari, 2.7 per cent of borrowers used the cash to pay off other loans.

However, although most of the money that the middle class spends is borrowed, Kiiru says it plays a key role in creating job opportunities for other people.

The middle class will take up all the parking space in pubs on weekends and fill up beaches in Mombasa during holidays.

They will splurge on alcohol and narcotics more than the poor and the rich, according to KNBS.  

Their knack for finer things in life has seen them drive up the consumption of imported hard liquor - whiskey, gin, vodka, tequila, brandy and rum.

Official data shows an uptick in value of imported hard liquor, which increased more than four-fold in the last decade to hit Sh5.3 billion in 2019.

About a third of these spirits came from the United Kingdom, the home of Scotch whiskey.

The middle class’ tastes for Scotch whiskey have changed as fast as their favourite drinking joint in Nairobi. In less than 10 years, they have quickly moved from Jameson to Black Label.

But thanks to the pandemic, the same way they furiously climbed down from the high-end apartments, many of the middle-class revelers have quickly downgraded to much cheaper gin brands and sought to televise what they would like to believe is a ‘gin revolution’.

But middle-class families have also invested heavily in their own education and that of their children. They believe strongly, like many other Kenyans, that academic excellence is the launchpad to the next social stratum.

It is a belief that has been exploited by suave business people who have extracted millions of shillings in fees from the middle class by hyping the importance of what is basically day-care services through staging elaborate school graduation ceremonies.

Yet, as some in the middle class themselves sometimes found, education has not always been the key to economic success. At least not in Africa, according to Bright Simons, an analyst.  

In a 2013 article, Simons noted that in Sub-Saharan Africa, those with money to spend are not your typical middle-class professionals such as lawyers, doctors, bankers or engineers who are aware of such iconic brands as LC Waikiki, Gucci, Porsche or Hennessy.

Instead, incomes are rising the fastest among the semi-literate engaged in brokering trade in goods and services across fragmented markets.   

The “vanguard of the African middle class,” Simons said, are the second-hand goods dealers and distributors opening up small towns to commerce.

These entrepreneurs, who had traits of the typical Western middle class, were rarely educated. 

“This amazing contradiction in most African societies — of an expanding educated underclass and an ‘uneducated’ rising economic class — sums up why the African economy is struggling to acquire the characteristics one would expect of an economy bursting with middle-class vibes,” said Simons.

Moi University sociology lecturer Moses Mutua says the business people are street-smart individuals who include the millions in the jua kali industry.  “They have a lot of money.”

Dr Shilabukha blames this imbalance on the poor political organisation, with resources not being allocated accordingly.

Headline numbers such as GDP and GDP Per capita in most African economies, said the Harvard Business Review, are misleading as most of the resources do not trickle down but instead are concentrated in a few well-connected individuals. 

Consequently, there is some kind of consensus that the gospel of the burgeoning middle class, which saw a lot of multinationals establish huge malls, fast-food joints and high-end apartments in Nairobi and its satellite towns, was a fallacy.

Some of the businesses that set up shop in Kenya, and Africa generally, on the back of a growing consumer class have since beaten a hasty retreat as the middle class frenzy fizzles out.

In 2013, AfDB noted that as people gain middle-class status, they are likely to use their greater economic clout to demand more accountable governments.

“This includes pressing for the rule of law, property rights and a higher quantity and quality of public services,” its report said.

But Kenya’s consumer class has been chastised as nothing but keyboard warriors. Those who, despite paying taxes still paying for private healthcare, education and security, have their best shot at political accountability have been voting with hashtags on Twitter.

Instead, they have abdicated that role to the uneducated lower class.

“People who are learned or educated, who have power, transfer it to people who don’t have that economic power to make their decisions,” says Mutua.