BCG report highlights the growing upper wealth classes of ASEAN

30 November 2018

Home to 650 million people and an economy worth $6.5 trillion, the economic development of South East Asia has seen a rising middle class across the region.

The Southeast Asian economies have seen decades of sustained, high-level economic growth. The region is home to around 650 million people, with total GDP in 2017 in excess of $6.5 trillion. And the region is further projected to see strong economic growth going forward, at around 5% CAGR to 2030 – effectively doubling the region’s economic clout.

This has led to a marked rise in the size of the middle class. As a consequence of the changing demographics, the region will likely see a shift in how consumers buy their products in the future. A new analysis from The Boston Consulting Group on the digital integration of the ASEAN bloc highlights the changing wealth and population demographics in the region.Southeast Asia’s Middle-Class and Affluent ConsumersThe strong economic growth of Southeast Asia in recent years, which according to a recent McKinsey study includes 8 of the world’s 18 identified recent and longer-term outperforming emerging economies (those which have seen annual per capita growth of 3.5 percent over the past 50 years or 5 percent over 20), has seen a corresponding rise in incomes, with growing numbers of citizens becoming affluent.

The number of middle class and affluent (MACs) has increased steadily, with Malaysia out ahead at 78% of its population in 2017, followed by Thailand at 60% and Indonesia at 44%. The lesser developed countries, Vietnam and Philippines, in terms of current MACs, are set to see solid growth in the years ahead, at 5.5% apiece, while Malaysia and Thailand will see growth slow to 2.9% and 2.2% respectively. Altogether, the MAC numbers in the region are expected to rise from 40% today to 65% in 2030.Affluent Consumers Are Proliferating Faster Than the Middle ClassWhile the middle class is set to boom in the various SEAsian countries, the number of affluent, those with incomes in the top income segment of the respective income ranges, will also see significant increases in the years ahead. In Indonesia the group will grow from 24 million to 62 million by 2030, a CAGR of 8%. Meanwhile the established middle class will grow by 7% annually, from 26 million to 65 million. In the Philippines the number of affluent is set to see an even sharper increase, up from 20% this year to 34% by 2030, while the established middle class sees little movement, at around a 4 percentage-point increase.

Vietnam meanwhile will see the most significant increase in the number of affluent, with an 11% CAGR or an increase from 5 million to 17 million to the year 2030, while Thailand will see the number of affluent increase by 4% annually to 2030. Across all the countries, the number of poor is set to fall significantly over the coming decades, with all but the Philippines falling below 10% of their respective populations by 2030.Digital Influence and Engagement Among ASEAN ConsumersThe region is also contending with increased urbanisation. The region is set to see urbanisation increase from 48% to 57% by 2030, representing around 87 million people moving into an urban centre across the region. This is likely to be a mixed blessing, on the one side, it is more efficient to provide services, while on the other, various negative externalities associated with city life, from air pollution and waste, to resource pressures, such as water, will need to be contended with.

One upshot of these changing demographics is a growing shift in consumption habits. Digital penetration is relatively broad among the economies of Southeast Asia (at 67% in in Thailand, 64% in the Philippines and 53% in Vietnam), and people are turning to online channel for shopping. Demands for online goods and services has increased significantly in recent years, with the wider BCG report noting that by last year around 16% of people in Thailand had bought from an online vendor, with similar numbers in Vietnam (14%) and Indonesia (12%).

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Economic boom will see 500 million Indians enter middle-class within a decade

18 April 2019

India’s economy is projected to grow at a base rate of 7.5% annually to 2030 according to an analysis from Bain & Company, with 500 million people moving into the middle- and high-income bracket over the period.

India has boomed in recent years, buoyed by a growing population and rapid economic development. Today the country is the world’s second largest in terms of population and sixth largest in respect to economic clout – with its economy still growing as one of the world’s fastest, at 7.5% in 2017. As incomes have risen, millions of citizens have moved up into new consumer categories.

An analysis from Bain & Company for the World Economic Forum shows that the future is also bright for the country according to long-term fundamentals, with a growing GDP of which around 60% is domestic private consumption, insulating it to a degree. There is also a healthy savings rate, at around 22% of income, and a large working age population, with a median age of 28 years.Evolution of household income in IndiaThe Indian economy is projected to enjoy strong growth in both the low and high case scenarios considered in the analysis. The base case will see economic growth stable at 7.5% on average until 2030, with just a 1% degree shift either side of this figure for the lower and the higher case scenarios. The effect of growth for the base case is an additional 500 million middle- and high-income earners added to the economy to 2030, with 50 million fewer in the low case scenario – pushing the share of upper-middle and high-income earners to 48% of the total population.

The firm’s projection of income growth would see consumption spending increase from $1.5 trillion to a massive $5.7 trillion by 2030. The growth is largely driven by a huge increase in the country’s middle class households, which are set to expand by 140 million, while the high-income earners are set to grow by 21 million – together a 51% increase on 2018. The middle class will see its share of total consumption increase from 30% to 47%, while around 25 million people will be rise out of poverty, with total poverty decreasing from 15% to 5% of the population.Indian population statisticsUnlike much of the developing world, India is ageing slowly, with a current median working population age of 28 which is set to rise only slightly, to 31, by 2030. The effect is that by 2030 the country will have the largest working age population at the youngest relative age. The rural population has also shrunk considerably since 2005, falling from 59% of the population to 51%.

The developed rural population has grown slowly over the same period, from 13% to 15%. The urban population meanwhile has increased from 28% of the population to 34%. Urbanisation is also set to continue. By 2030, the rural population is projected to decrease further, to 44%, with developed rural only growing by 1% in the period. Urban development is projected to hit around 40% by 2030.

The ongoing urbanisation and rising incomes will lead to further consumer shifts. With considerable changes to income distribution across India, growth in the middle class segment is expected to see around $2 trillion in incremental spending on affordable mid-priced offerings, while a further $2 trillion will be shifted to more premium product lines as consumers trade up.Consumer spending shifts in IndiaBain notes that buying behaviour will shift in line with both trading up as well as in new category spending. In food for instance, around 25% incremental spending will shift towards more premium goods, while around 32% will shift into health and organic food stuffs.  Personal care meanwhile is set to see considerable premiumisation, at 59% of incremental spending, as well as a broadening of product categories.

“India will continue on its path as one of the world’s most dynamic consumption environments, propelled by five major drivers: income growth; steady and dispersed urbanisation; favourable demographics; technology and innovation; and evolving consumer attitudes,” states the report. “As these drivers move India forward, many stakeholders have the potential to shape the country’s positive consumption future.”

It concludes: “The time is ripe for these stakeholders to come together and address head-on the most pressing societal challenges facing India today – skilling and job creation, socio-economic inclusion of rural India, and building a healthy and sustainable future for its citizens. Collaborative efforts to address these challenges will unlock the full potential of a young, connected and thriving nation, and establish India as a model for fast-growing consumer markets of the world.”