The Middle Class is Growing, But Is it Really?

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The Middle Class…

In 2020, Kenya's middle class was estimated to comprise 44% of the total population and 45.9% later in 2023🤯.

But how much of an impact is this growing demographic having on the country’s start-up ecosystem?

Is Kenya’s middle class truly expanding, or is it merely shifting, considering its increasing fragility?

The middle class in Kenya (and globally, really) is hailed as the backbone of the economy, driving consumption, fueling demand, and fostering entrepreneurship.

Going by its purchasing power, education, and employment in the formal sector, this economic class truly plays a vital role as consumers, employers, and investors.

Entrepreneurs are taking note; start-ups and businesses across the country are increasingly targeting this expanding middle class, hoping to tap into its vast potential.

But does the reality live up to this optimism?🤔

In this article, The Bourse delves into the growth trajectory of Kenya’s middle class, exploring whether it is truly expanding in a sustainable way, its role in the economy, and its capacity to drive the start-up ecosystem. We’ll also investigate whether this demographic is the solid foundation many believe it to be, or if it’s more fragile than expected.

The KNBS defines the middle class as anyone spending between KShs 23,670 and KShs 199,999 per month, translating to a gross monthly salary of between KShs 26,000 ($201) and KShs 270,000 ($2,088).

About 44.9% of Kenya’s population falls under this economic classification, with 16% being the upper middle class.

An overview of the expansion of Kenya's middle class shows a 29.5% YoY CAGR between 2014 and 2023;

• 2014: The middle class was a modest 4% of the population, estimated at around 400,000 people.

• 2022: By this year, the middle class had expanded dramatically to 24% of the population, reflecting improved incomes and consumer spending.

• 2023: A report from 2023 reveals that nearly 44.9% of Kenyans now fall within the middle-class category. This group is defined as those spending between $2 and $10 per day.

But…how stable is this growth?

Kenya’s middle-class group has undoubtedly experienced strong growth, at least going by absolute numbers - the average growth rate of ~30% is certainly one to reckon with.

This growth is, however, diluted by a couple of factors, including inflation and economic inequalities.

Rising costs in essential spending areas like food, housing, and fuel are forcing middle-class families to either reduce discretionary spending and/or dip into savings, significantly affecting their financial stability and quality of life.

A Kenyan middle-class household earning around KSh 100,000 per month, typically spends the largest portions of their income on housing (30%), food (25%), and transportation (12%), with smaller amounts allocated to education (10%) and healthcare (5%).

Recent inflation in these sectors—particularly food (15%), housing (10%), and transportation (10%)—has significantly reduced disposable income, cutting purchasing power by approximately 9.25% or KSh 9,250 per month.

Fluctuations in savings rates also reflect the instability of the middle class, which is the primary driver of savings growth.

The Middle Class as a driver of Entrepreneurship in Kenya

Kenya’s middle class is a driving force behind the start-up boom, especially in key sectors like fintech, e-commerce, and renewable energy. They are educated and exposed enough to understand, appreciate, and afford these innovative solutions—mobile payments, efficient logistics, and clean energy.

A couple of standout enterprises are already tapping into the middle class's demand for affordable solutions. For example:

• M-KOPA Solar is making clean energy accessible with its pay-as-you-go solar power systems, allowing households to transition from expensive and unreliable energy sources without upfront costs.

• Safaricom’s Home Fibre provides affordable, high-speed internet to homes across Kenya, enabling access to essential services like remote work, education, and entertainment.

• Koko Networks offers bioethanol-powered stoves as a clean cooking alternative, helping families reduce their reliance on costly and harmful charcoal while promoting environmental sustainability.

• Starlink provides satellite internet, offering fast and reliable connectivity even in remote areas, making internet access affordable for households and businesses previously underserved by traditional providers.

These companies are shaping the future by offering innovative, cost-effective solutions to Kenya’s middle class.

The Outlook

A general circular economic equation often subscribed to by policymakers and entrepreneurs is; a strong economy creates successful businesses, and a strong middle class = a strong economy.

Logic follows that as the middle class grows, so does consumer purchasing power, which in turn drives economic growth.

Kenya’s middle class is likely to continue its growth in the future, though at a more moderate pace.

The increasing demand for digital solutions, combined with a young, urbanizing population only validates this.

However, the stability of this demographic remains in question, given its vulnerability to inflation and policy-driven external shocks. For start-ups banking on this premise, the implications are clear:

1. Solving for true and compelling problems remains key, as opposed to offering luxury and convenience.

2. Monetization strategies are becoming even more critical: Founders must adopt intuitive revenue models that resonate with the market. For instance, in such times, it is smarter to start with freemium models and then introduce tiered pricing as a way of capturing users when they are in lower economic levels and gradually monetizing as they move up the classes per economic mobility. Pay-as-you-go models also become increasingly relevant and preferred.

3. Innovations that focus on Affordability and Accessibility as the core disruptive features also stand to reap big. Enterprises with such innovations include Turaco and Oye, which offer micro-insurance products.

That’s it for our first issue of 2025, good people!

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