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Pakistan's Middle Class Consumer Population Among World's Fastest Growing

RiazHaq

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http://www.riazhaq.com/2020/01/pakistans-middle-class-consumer.html

Although the rate of growth has slowed since 2018, Pakistan's middle class consumer population still remains among the fastest growing in the world. In a report titled "Emerging Markets Transforming As Velocity Markets", Ogilvy and Mather, a global market communications firm, has put Pakistan among what it calls "Velocity 12" group of economies that include Bangladesh, Brazil, China, Egypt, India, Indonesia, Mexico, Myanmar, Nigeria, Pakistan, Philippines and Vietnam. The term velocity describes both the rate of real change in the size of the middle class as well as a priority for companies as they consider business investment and marketing in V12 countries. These 12 countries will be the biggest contributors to the next billion middle class consumers, according to the report.

The Velocity 12 report says that this next billion middle-class group will:

1. Be increasingly defined by women and youth as the change agents, with purchasing power crossing cultural, religious and demographic divides.

2. Comprise the largest block of newly connected consumers on the internet, globally connected as never before – with global connectivity that is projected to double in the next five years.

3. Rapidly increase its social engagement, and brands discussion, as marketers compete in the digital marketplace for greater share of the new middle-class prize.

4. Urbanize faster than other parts of the world, dominating the future list of megacities, while creating a new “urbangea” that connects large swathes of these countries into a virtual trading zone.

5. Propel cities, more than countries, to become the unit of invention, entrepreneurship and investment.


Growth in Middle Class Consumers 2015-25. Source: Ogilvy and Mather

Velocity 12:

Ogilvy and Mather's report on "Velocity 12" begins with the story of Fahima Sarkar, a Pakistani woman entrepreneur who lives in Lahore. Here is an excerpt:

"If you want to catch a glimpse of the global economic future, then meet Fahima Sarkar. In many ways, Fahima – who lives in Lahore, Pakistan – is typical of her group of friends, and a growing number of women across South Asia. After attending college, Fahima worked in sales for a Karachi-based garment company that was rapidly expanding their business in the region. She eventually left the role because she wanted to start a family. Fahima is a lot different than her own mother – both in her outlook and her lifestyle. Rather than being solely a stay at home mom, Fahima has used her time raising her child to develop a new career as an “Instapreneur,” someone who uses social media to start her own business. Her online venture (headquartered on her kitchen table): selling high-end picture frames via the Web to parents who want an upscale way to display their children’s photos at home. That was her first taste of entrepreneurship – and she turned a profit almost immediately."

"Velocity 12" report forecasts Pakistan's middle class consumer population to reach 122 million by 2025, representing a gain of 59 million members over a 10 year period from 2015 to 2025.

Reality Check:

We are almost half way through Ogilvy's 10 year forecast period. How is Pakistan doing? One indicator is the growth in vehicle ownership, particular the ownership of motorcycles.


Vehicle Ownership in Pakistan. Source: PBS

Private vehicle ownership in Pakistan has risen sharply in 4 year period from 2015 to 2016. More than 9% of households owned cars in 2018, up from 6% in 2015. Motorcycle ownership has jumped from 41% of households in 2015 to 53% in 2018, according to data released by Federal Bureau of Statistics (FBS) recently. There are 32.2 million households in Pakistan, according to 2017 Census.


Retail Sales in Pakistan. Source: Statista.com

Retail Sales Growth:

Pakistan has seen retail sales climb from $145 billion in 2015 to $210 billion in 2018, according to Statista.com. Over 60 percent of the Pakistani population is between the aged of 15 to 64 years, which is the prime age of consumer spending.

With the introduction of 3G/4G services, internet penetration has risen rapidly. Internet subscriber growth in Pakistan is averaging over 22% per year and total subscribers crossed the 70 million mark in 2019. Cheap smartphones, low cost of 3G/4G services and a consumer-goods obsessed middle class has meant that Pakistan’s e-commerce sector is “mobile first”: some e-commerce start-ups claim that over 75 percent of their total business is online.

E-Commerce:

Online sales are growing much faster than the brick-and-mortar retail sales. Adam Dawood of Yayvo online portal estimates that e-tail sales are doubling every year. He expects them to pass $1 billion in the current fiscal year (2017-18), two years earlier than the previous forecast. This is being enabled by increasing broadband penetration and new online payment options. Ant Financial, an Alibaba subsidiary, has just announced the purchase of 45% stake in Pakistan-based Telenor Microfinance Bank. Bloomberg is reporting that Alibaba is in serious talks to buy Daraz.pk, an online retailer in Pakistan.

Advertising Revenue:

Growing buying power of rapidly expanding middle class in Pakistan drove the nation's media advertising revenue up 14% to a record Rs. 76.2 billion ($727 million), making the country's media market among the world's fastest growing for FY 2015-16, according to Magna Research. Half of this ad spending (Rs. 38 billion or $362 million) went to television channels while the rest was divided among print, outdoor, radio and digital media. `





Digital media spending rose 27% in 2015-16 over prior year, the fastest of all the media platforms. It was followed by 20% increase in radio, 13% in television, 12% in print and 6% in outdoor advertising, according to data published by Aurora media market research

Mass Media Growth:

Advertising revenue has fueled media boom in Pakistan since early 2000s when Pakistan had just one television channel, according to the UK's Prospect Magazine. Today it has over 100. This boom has transformed the nation. The birth of privately owned commercial media has been enabled by the Musharraf-era deregulation, and funded by the tremendous growth in revenue from advertising targeted at the burgeoning urban middle class consumers.

Sports and Entertainment:

Sports and entertainment sectors are major beneficiaries of increasing advertising budgets. Commercial television channels' shows and serials are supported by advertisers. A quick look at Pakistan Super League 2018 matches reveals that all major consumer brand names are either directly sponsoring or buying advertising from broadcasters. These ads and sponsorship have turned PSL into a major business producing tens of millions of dollars in revenue to support cricket in Pakistan. Last year, Pakistan Cricket Board's budget was over $40 million and a big chunk of it came from PSL. This year, the PSL chairman Najam Sethi estimates the PSL franchise valuation is approaching half a billion US dollars with potentially significant revenue upside.

Downsides of Consumer Boom:

There are a couple of downsides of the consumer boom. First, a dramatic increase in solid waste. Second, rising consumption could further depress Pakistan's already low private savings rate.

FMCG products come with a significant amount of plastic and paper packaging that contribute to larger volume of trash. This will necessitate a more modern approach to solid waste disposal and recycling in Pakistani towns and cities. An absence of these systems will make the garbage situation much worse. It will pose increased environmental hazards.

Pakistan's savings rate is already in teens, making it among the lowest in the world. Further decline could hurt investments necessary for faster economic growth.

Summary:

Pakistan's $210 billion retail market is among the fastest growing in the world, according to Euromonitor. In a report titled "Emerging Markets Transforming As Velocity Markets", Ogilvy and Mather, a global market communications firm, has put Pakistan among what it calls "Velocity 12" that include Bangladesh, Brazil, China, Egypt, India, Indonesia, Mexico, Myanmar, Nigeria, Pakistan, Philippines and Vietnam. These 12 countries will be the biggest contributors to the next billion middle class consumers, according to the report. Expanding middle class, particularly millennials with rising disposable incomes, is demanding branded and packaged consumer goods ranging from personal and baby care items to food and beverage products. Strong demand for fast moving consumer goods is drawing large new investments of hundreds of millions of dollars. Rapid growth in sales of consumer products and services is driving other sectors, including retail, e-commerce, paper and packaging, advertising, media, sports and entertainment. Potential downsides of soaring consumption include increased amount of solid waste and decline in domestic savings and investment rates.

Related Links:

Haq's Musings

South Asia Investor Review

FMCG Boom in Pakistan

Pakistan Retail Sales Growth

Advertising Revenue in Pakistan

Pakistan FMCG Market

The Other 99% of Pakistan Story

PSL Cricket League Revenue

E-Commerce in Pakistan

Fintech Revolution in Pakistan

Mobile Broadband Speed in Pakistan

Riaz Haq's YouTube Channel

PakAlumni Social Network


http://www.riazhaq.com/2020/01/pakistans-middle-class-consumer.html
 

BringHarmony

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Interestingly, the projected middle class numbers all countries put together leaving India and China is 877 million. Current middle class numbers of India and China put together is about 1.2 billions. That said I guess any one coming in middle class in China will have WAY higher purchasing power than say in India or Pakistan.

If you produce good and services which are slightly more expensive and want to export them, don't piss China off.
And if you produce basic daily need items or cheap goods or services, don't piss India off.
 

LeGenD

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Depends upon how you measure Middle Class in Pakistan. There is no official concept of Middle Class in Pakistan but quintiles which are rather misleading.
 

Kabira

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I think retail buble has burst. Now Pakistan will have to find ways to drastically increase exports, remittances to keep up with retail growth. Huge investment is needed just for import substitution.

Retail and real estate no longer ideal investment in Pakistan.
 

Clutch

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A "middle class" that:
  1. Can't afford to buy cars (big ticket items)
  2. Can't afford to pay it utility bills
  3. Can't afford the private education for its children
  4. Health costs are astronomical that they "middle class" resorts to peers and dua only as a cure
  5. Is burdened with inflation
  6. Has seen its purchasing power diminish and ever increasing cost of living.

Enjoy you "middle class" lifestyle!
 

RiazHaq

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Economist Akbar Zaidi: "With an 18 per cent #GDP, #Pakistan is no longer an #agriculture #economy....Places have become more accessible with people coming closer thanks to #telecommunications, #media" #socialmedia affecting lives..#women better educated. https://www.dawn.com/news/1528300


He said that it points towards the changes in Pakistan’s economy while looking at various indicators such as rural and urban life, employment, sources of income, people, their potential, etc. “With an 18 per cent GDP, Pakistan is no longer an agriculture economy,” he pointed out before talking about employment and what changes have taken place there along with the source of income of people in rural and urban areas.

“Places have become more accessible with people coming closer thanks to telecommunications, media, etc. Things are becoming interlinked,” he said. He also spoke about how social media was affecting lives here and how more women stepping out of their homes and getting good education were contributing to the feminist economy.

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Prof Dr Riaz Shaikh, dean, Faculty of Social Science and Education Department at Szabist...“We have been missing the politics of urbanisation,” he said. “Urban politics has now captured Karachi’s politics which is based on the struggle of classes and from class politics it is moving to sectarian politics,” he said wondering if this is now an overdeveloped state using biopolitics as a tool to marginalise certain people such as the ‘missing persons’.

He also spoke of the role of the media and journalists, how freedom of speech and expression were curtailed etc. “But after 2007, the media here has played an important role in teaching a lot to the Pakistani establishment though now there is also a business content emerging within the media as a result missing many things in the national discourse because the media doesn’t want a hostile response from the government,” he said.

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Senior journalist Khurram Husain, meanwhile, spoke about how it has become evident about who really represents the state from the recent meeting of the army chief with the business community. “The businessmen were complaining about taxes and saying that the structural change was killing them but the government is not backing down. They are told that they were willing to listen to them and help them but within certain limits or constraints,” he said, reminding also about the mini-budget of early last year which was to serve as a revenue exercise though the billionaires were still having their way during it all at least until former finance minister Asad Umar left and the state got its voice. “Class in Pakistan operates at some points and not at others as class is heavily fragmented,” he said.
 

Syed1.

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In the USA, a median anual income of $61,372 makes you a middle class. Any American household with earning between $41,119 and $122,744 in 2017 were considered as middle-class family. How about in South Asia ?
https://www.thebalance.com/definition-of-middle-class-income-4126870
Highly misleading statistic.... 61k might be middle class in places like Ohio or Iowa, but in NY or CA you will be closer to low income than middle income, barely able to afford rent.
 

Old School

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Highly misleading statistic.... 61k might be middle class in places like Ohio or Iowa, but in NY or CA you will be closer to low income than middle income, barely able to afford rent.
That is a median amount. Did you read the range between $41,119 and $122,744 ?
 

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