Shedding light on Africa’s ‘invisible’ wealth market

BY KITNES - Oct 09, 2020 at 10:53am 100

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Standard Bank’s inaugural African Wealth Report 2020 brings to light a highly relevant segment of the global wealth market, which to date has been largely left out of international studies. With the help of leading research house, Intellidex, we have produced a profound body of insights that will go a long way towards promoting a greater understanding of the African HNWI segment – a segment critical to Africa’s future. Perhaps most importantly, this report helps make visible and relevant a demographic that to date has been largely invisible.

The significance of Africa’s HNWIs cannot be overstated as they are the very people that are practically leveraging the continent’s enormous growth opportunities. In the five years between 2013 and 2018 the number of dollar millionaires in Africa grew 8% to 177,265, according to The Knight Frank 2019 Wealth Report. This number is expected to grow by a further 18% over the next five years to 208,713 in 2023. Africa’s population of ultra-wealthy individuals, defined as those with net assets worth $30 million or more, is growing at an even faster rate. The number of these ultra-high-net worth individuals (UHNWIs) grew by 10% to 2,050 in the five years to 2018 and is expected to rise a further 20% to 2,450 by 2023.

Yet Africa’s wealth market still represents a comparatively small slice of the global wealth and investment landscape, which Knight Frank expects will have no less than 23,404,810 dollar millionaires and 241,053 UHNWIs by 2023. Nevertheless, since most African countries are still developing their capital market infrastructure, HNWIs in Africa (outside of South Africa and Mauritius) are, arguably, much more significant drivers of economic growth than in other parts of the world.

The absence of sophisticated financial market infrastructure on the continent also means that African HNWIs are generally compelled to reinvest their wealth back into their businesses or begin new ventures. This represents an enormous opportunity for the continent’s wealth to access a wider variety of asset classes as part of their long-term wealth creation strategies. Despite the significance of this segment for Africa’s growth, previous attempts at further analysis have been faced with limited data, particularly on how their wealth was created; their attitudes to wealth; and how they re-invest and preserve their wealth.

By drawing on individual data points, informed by face-to-face interviews, the African Wealth Report 2020 reveals that the processes underpinning wealth creation, growth and preservation across Africa are being shaped in unique ways. The fact that African HNWIs travel so much, generally educate their children abroad and eventually seek to externalise their wealth, largely through property in the United Kingdom and the United States, is an important insight. This especially speaks to the need for sophisticated onshore and offshore capabilities for this segment.

The propensity for African HNWIs to hold and secure wealth in property, also presents a strong case for the continent’s legislators to fast-track legislation that enables more generally accessible and secure land ownership. The fact that, outside South Africa, the equity component of HNWI’s investment portfolios is so low, also sends important signals to legislators regarding the development of capital markets that offer strong domestic investment propositions. HNWIs in Africa need access to alternate diversification options, beyond just local and global property.

There is a strong need for African HNWIs to have access to their holistic financial universe so they can get a single view of their net wealth. Access to a myriad of solutions ranging from due diligence capabilities, investment acquisitions advice, digital technology and easily accessible financial platforms are likely to become increasingly important to HNWIs seeking to grow their wealth. More subtle insights, such as how much reading HNWIs in Africa do, their enjoyment of the theatre and the arts, as well as the amount of time they spend with family and on spiritual development also have profound implications for the kinds of legacies they plan to leave. African HNWIs are very family-focused.

This is not only important to understand from a client perspective but also critical to informing how we build an intergenerational wealth advisory practice. Ultimately, we are in the business of people so understanding our client’s unique wealth journeys and personal ambitions forms the cornerstone of our service offering. It is our hope that the Standard Bank African Wealth Report 2020 will widen this understanding to a global audience, thereby making the importance of this previously invisible segment visible for the first time.