Low-income groups form a $5 trillion consumer market

Wednesday, March 21, 2007

Four billion people form the base of the economic pyramid (BOP) ? those with incomes below $3,000. Yet together they have substantial purchasing power as BOP constitutes a $5 trillion global consumer market.

This was stated in World Bank?s report released Monday titled ?The Next 4 Billion?. The data compiled by the bank reveals that BOP population, though made up of very low income groups, is the largest consumers in food, transport, health, energy and water sectors in their economies. The data relating to Pakistan is in line with the general findings of the report.

The BOP makes up 72% of the 5,575 million people living in this globe with Africa, Asia, Eastern Europe, and Latin America and the Caribbean ? home to nearly all the BOP. The BOP segments on the basis of income in US dollars are BOP3000, BOP2500, BOP2000, BOP1500, BOP1000 and BOP500.

In Pakistan BOP accounts for most of the national consumption in food, health, transport. This large segment of humanity faces significant unmet needs and lives in relative poverty: in current U.S. dollars their incomes are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India (almost the same in Pakistan). The report calls for broader business engagement with the BOP.

In rural Pakistan food consumption accounts for 55% BOP household spending. As incomes rise, the share of household spending on food declines. Food nevertheless represents the largest share of BOP household spending and the largest BOP market.

In national food markets the BOP share is consistently high across measured countries in Asia. Bangladesh, Indonesia, Pakistan, and Tajikistan all have BOP shares exceeding 95%. In 17 of the 18 countries in Africa and Asia with bottom-heavy BOP food markets, the bottom three BOP income segments account for more than 50% of measured national food spending.

The bottom two BOP groups alone account for more than 50% of national food spending in Pakistan. Average annual food spending per household in the BOP in Pakistan is $2,643. While BOP3000 households have 6 times as much income on average, they outspend BOP500 households in the food market by a ratio of only 2:1 in Cameroon, 2.3:1 in South Africa and Pakistan, 2.4:1 in Kazakhstan, 1.9:1 in Uzbekistan, and 3:1 in Peru.

The total BOP health market in Asia (including the Middle East) is estimated to be $95.5 billion, accounting for the spending of 2.9 billion people. In Asia the extremes are represented by Pakistan, Bangladesh, and Tajikistan, where the BOP constitutes more than 98% of their national health market.

Both Indonesia and Pakistan have bottom-heavy health markets meaning that BOP500 and BOP1000 poorer segments are major consumers in national health market. Lack of clean, affordable energy is part of the poverty trap. Pollution from indoor use of harmful fuels for cooking and lighting leads to significant health problems. And the higher cost of inefficient energy-using devices and the lack of access to modern energy sources such as electricity become part of the BOP penalty ? the added cost of being poor.

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Source: The News (Pakistan) (link opens in a new window)