March 20, 2007 / 6:43 AM / 12 years ago

World's poor represent $5 trillion market: report

WASHINGTON (Reuters) - The world’s estimated four billion people who live under the poverty line represent an untapped global market worth $5 trillion in local purchasing power, according to a new report.

A customer of a micro finance institution strings beads into necklaces at a workshop in a slum area in Mumbai February 17, 2007. The world's estimated four billion people who live under the poverty line represent an untapped global market worth $5 trillion in local purchasing power, according to a new report. REUTERS/Prashanth Vishwanathan

The report by the International Financial Corp., the World Bank’s private sector arm, and environmental think-tank the World Resources Institute, measures the size of the market using income and expenditure from household surveys.

It comes as domestic and multinational corporations look closer at breaking into this under-served markets, where microlending is already a mushrooming business.

Development projects have focused on the poorest of the poor, but a much larger group are families with incomes below $3,000 a year, who mainly work in the informal sector, have no bank accounts or access to modern financial services, and lack access to clean water, electricity and basic health care.

The report “The Next Four Billion: Market Size and Business Strategy at the Base of the Pyramid,” refers to this group as the base of the pyramid markets, or BOP.

A wealthier mid-tier group with per capita incomes between $3,000 and $20,000 represents a global market worth $12.5 trillion, but they are better off in general, living mainly in cities and are better served.

“The report backs up the calls for broader business engagement with the base of the pyramid, stressing the need for the private sector to play a greater role in development,” said Michael Klein, the IFC’s chief economist.

“The report also highlights the need for governments to pick up the pace of reforms to the operating and regulatory environment, so that it becomes easier to do business,” he added.

The BOP market is by far the largest in Asia and the Middle East, reflecting the sheer weight of the population, with 2.86 billion people with an aggregate income of $3.47 trillion.

In Eastern Europe, the BOP market totals $458 billion and includes 254 million people, or 64 percent of the region’s population, with 36 percent of its aggregate purchasing power.

In Latin America, this segment is estimated to include $509 billion and 360 million people, which is 70 percent of the region’s population but only 28 percent aggregate purchasing power.

In Africa, the BOP market is smaller at $429 billion, but it is by far the dominant consumer market on the continent, representing 71 percent of aggregate purchasing power in the region.

In surveys that look at sector markets for the 4 billion consumers, the report said range from $20 billion for water, $51 billion for technology, $158 billion for health, $433 billion for energy and the largest is $2.89 trillion for food.

According to surveys more than half of these poor households’ health care spending is for pharmaceuticals. As incomes rise, the share of household spending for food declines, while the share of spending for transportation and for phone and Internet access rises sharply.

For all developing regions except Eastern Europe, firewood is the main cooking fuel, while propane or other modern fuels dominate dominate higher-income segments and urban areas.

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