Floating Upwards: The Bottom of the Pyramid Segment is No More

Pew Research Center’s latest results on global income distribution show some rather large shifts among the lowest income segments.

PG-2015-07-08_globalClass-00The Bottom of the Pyramid or Base of the Pyramid (BoP) segment, defined as those who live on less than $2.50/day has just lost a significant percentage of the population. While one can quibble that $2.50 is greater than $2.01 and thus they are still there in the low income segment, you’ll recall that the BoP segment was originally $2/day in its heyday, estimated to be 4 billion strong in the old days.

130108-Africa-02

The low income segment, as defined by Pew, ranges from $2.01 to $10 a day, which overlaps with the African Development Bank’s ‘floating class’ and the ‘lower middle’ class. Lets look at the ‘floating class’ so as to cover all bases when it comes to the income range of people whose cash flows are irregular and unpredictable. One day might be only $2 but the next could be $10. This daily amount, it floats.

From the Pew report:

This study divides the population in each country into five groups based on a family’s daily per capita consumption or income.3 The five groups are labeled poor, low income, middle income, upper-middle income, and high income. Of the four thresholds that separate these different income groups, two are especially important to keep in mind. The first is $2, the minimum daily per capita income that must be exceeded to exit poverty.4 The second is $10, the threshold that must be crossed to attain middle-income status. The thresholds are expressed in 2011 prices and 2011 purchasing power parities.

PG-2015-07-08_globalClass-02

700 million people exited poverty.

They’re not rich yet nor middle income, but their upward mobility and emergence is undeniable, and their consumption is increasingly visible. They are part of the reason why African statistics on the middle class market are so volatile. Obvious and visible consumption is taking place yet few fit the traditional description of what an emerging middle class segment should look like.

Aspirations change even one rung up the ladder

Income is not the only reason for my confidence in making the claim that the era of the Bottom of the Pyramid, the BoP, is over. Along with the few more shillings or rupees a day, comes a shift in mindset. Suddenly, from worrying non-stop about the next meal, we’re thinking about the possibility of investing in a motorcycle, or a cow. Sending the smart one to high school or taking computer classes.

Some old habits remain as the need for frugal buyer behaviour hasn’t changed with a few more dollars a day, and we’ll still see purchasing patterns influenced by cash flows and informal retail. But the dreams have grown and changed.

Once this happens, even if there might be dips in cash flow, one’s  worldview is very different from those who are still struggling to survive. We learn to make do if there’s a tight patch, but we don’t go back to living like “the poor”. And it is this transformation that has broken the back of the BoP forever.

Your product or service for the BoP might now be too small for their newly expanded hopes and dreams and ambitions.

 

Related post predicting this moment from 2013

2 Comments

  • Hi Niti:

    Interesting! But I always find data on income confusing at best — particularly when it is applied to questions of poverty.

    What is Pew measuring when it measures income in oral communities, where nearly a billion people live? Is it measuring increases in household wealth, or increases in the monetization of the local economy, or as mix of both?

    I was recently working in East Africa and in village after village finding that householders needed to spend money today to solve problems their parents could solve with no money at all. This was particularly true for ceremonies like funerals and weddings, where social expectations demand the use of cash today, but may not have until quite recently. But it is also true for some consumer items, from salt, oil or soap to airtime or basic schooling.

    In a pre-monetized economy, it was possible to live for long periods without necessarily having to ‘worry about the next meal’. After all, wealth was stored in cows or chickens (and in many places still is), and in emergencies these could always be sold or eaten.

    Are you sure, in the context of steadily expanding global monetization, that people are actually economically less vulnerable simply because they earn another $0.50 or $1 a day? I cannot rule out the possibility that you are right, but the case may be harder to make than you are suggesting here. I have never seen a quantitative analysis of the impact of expanding monetization on poverty or vulnerability. Are you aware of one?

    Brett

  • Brett, I hear what you are saying and have wandered around E/Africa having seen similar. In fact, its not just Africa, everywhere you go, there’s a pride in just how little ‘cash’ money you need for daily life (not the special events you mention or the ‘trade goods’ of oil, salt, tea etc) in the rural regions.

    I’m not talking about each and every one – there is undoubtedly going to be a band that’s still in the volatile “2 to 4” segment, the floating class per AfDB, regardless of rural or urban or India or ASEAN or Africa. On the other hand, there has definitely been an overall upward mobility and economic emergence, that’s visible in India, and in Kenya and Nigeria and Rwanda etc Not each and everyone of these never quite certain numbers, but enough for a critical mass of change. Enough to say that there shouldn’t be a Bottom of the Pyramid. I’ve sensed this and seen this for the past couple of years, now there’s “official” metrics to show it.

    I’m not talking about income vulnerability per se so much as a mindset shift – an ambition which I hear when I talk to people that wasn’t there before. And that mindset shift, that ambition, the aspirations, they’re the ones which are upwardly mobile and they’re viral. There’s a lot that can be done when you’re not stagnantly thinking you’ll be mired in the struggle of the next meal. There’s a lot you can do for yourself when you’re optimistic that the next day might be a better one. It has little to do with whether you got today’s 50 cents or not.

    That attitude shift is what I’m saying has destroyed the semblance of a “bottom”

    Does this help? Also see the next post, dated July 10th

    PS. Pew’s data is from the World Bank’s MDG report, apparently.

Join the Discussion

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This site uses Akismet to reduce spam. Learn how your comment data is processed.