How Well-Off are the Emerging Market Middle Classes?

What constitutes a middle income in emerging markets differs dramatically from country-to-country. This matters because it affects overall purchasing power and within this the purchasing priorities of households. Understanding this can be a powerful tool in winning market share and engaging with middle class consumers.

Wide Range of Income Levels

Looking at the average incomes of decile 5 households in the world’s largest 20 emerging markets we can see striking differences between countries, with decile 5 households in Saudi Arabia at the top of the ranking, with an average disposable income of US$31,852 in 2013 down to India at the bottom with US$4,333.

Average Disposable Income of Decile 5 Households in Selected Emerging Markets: 2013

Source: Euromonitor International from national statistics 


Essentially Different

This range of incomes leaves very different amounts for discretionary spending (all spending minus spending on food and non-alcoholic beverages and housing).


Spending on Essentials vs. Discretionary Goods and Services by Decile 5 Households: 2013

Source: Euromonitor International from national statistics

In practice this means that a decile 5 household in Nigeria devotes 79% of its budget to the essentials, compared to a similar household in Venezuela which devotes just 39%. In Nigeria, spending on food and non-alcoholic beverages remains the largest share of overall budgets across all income levels; in Venezuela by contrast by the highest earning households devote a greater share of their expenditure to services such as hotels and catering and also to transport.

The prioritisation of household budgets is not simply correlated to average incomes. For example, the highest earning decile 5 households in our ranking are in Saudi Arabia, but these households devote less than half of their budgets to discretionary spending. This is because of the high proportion of spending in Saudi Arabia which is devoted to food and non-alcoholic beverages – due in part to a reliance on food imports which pushes up prices.

It’s all Relative

The relative wealth of households in emerging markets also differs substantially. So for instance the disposable incomes of decile 5 households in Colombia, Egypt and Nigeria are closer to those of the poor in their respective countries, than they are of the rich. Whilst in Malaysia and Iran the opposite is the case.

Proximity to the poor is indicative of a large bottom of the pyramid market. For instance the average disposable income in Colombia was US$18,519 in 2013, but almost two-thirds of households earned less than US$15,000. In Nigeria the average disposable income per household was US$9,381 but 89.2% of households had a disposable income below US$10,000.

Ratio of Decile 5 to Decile 1 Disposable Incomes: 2013

Source: Euromonitor International from national statistics

What does this Mean?

In short, a one-size fits all policy is not an option when targeting the middle class in emerging markets. Even within one region this is not a workable policy. For instance, if we look at 55 emerging and developing economies around the world we see stark differences within regions – if we take Latin America as an example, a decile 5 disposable income ranges from US$4,458 in Bolivia through to US$21,668 in Chile. Even in emerging Europe, the least diverse region, the average income of a decile 5 household is 3.8 times higher in Turkey than it is in Ukraine.

Disposable Income of Decile 5 Households by Region: 2013

Source: Euromonitor International from national statistics