Banks must prepare to serve the growing number of billionaires in Africa

The number of millionaires and billionaires in Africa continues to rise. Catering to these high-net-worth individuals is set to become more challenging as a new generation of wealth owners comes to the fore

The growth of wealth in Africa and the rising number of USD millionaires will shape the type of wealth management solutions that are demanded by customers 

Africa is made up of 1.3 billion people. Boasting ample natural resources, the continent has provided extraordinary wealth for a handful of individuals. Today, the region is reputed to be one of the fastest-growing in the world, with an annual GDP growth rate of approximately 3.5 percent.

Backed by resource-rich economies, Africa is also home to some of the richest people in the world, and the number is growing: an estimated 19,000 Africans became USD millionaires over the past decade. According to The AfrAsia Bank Africa Wealth Report 2018, there are now 148,000 high-net-worth individuals (HNWIs) living in Africa with net assets of $1m or more. The report also states that $920bn of the continent’s $2.3trn wealth – or 40 percent – is held by HNWIs, providing some indication of the concentration of wealth in the hands of a few. What’s more, there are currently 24 USD billionaires living in Africa, each with net assets of $1bn or more.

The growth of wealth in Africa and the rising number of USD millionaires will shape the type of wealth management solutions that are demanded by high-net-worth clients

The rich list
In December 2018, Forbes published a list of 23 African USD billionaires. In this report, Nigerian business magnate Aliko Dangote was singled out as the richest black person in the world, with a net worth of approximately $10.3bn (see Fig 1).

A further review of the top 10 billionaires on the Forbes list reveals real diversity in terms of the age, nationality and source of wealth of these individuals. Nicky Oppenheimer, for example, is a South African billionaire and philanthropist who has gained immense wealth mining diamonds. Naguib Sawiris is an Egyptian businessman who has made a great fortune in the telecommunications industry, in particular through the sale of Orascom to Russian firm VimpelCom (now Veon) in 2011.

Most of the top 10 billionaires listed are over the age of 60, with an average age of 65.2 years. Aged 44, Tanzanian Mohammed Dewji is Africa’s youngest USD billionaire and is ranked in 14th position. Women, meanwhile, are underrepresented on the list: Angolan Isabel dos Santos is the only woman featured among the top 10 USD billionaires.

Pleasing old and new
It is no longer news that Africa has produced a great number of individuals who have built successful business empires in what many would describe as a uniquely challenging business environment. It is important that private banks and wealth managers in Africa recognise the significance of this demographic shift. With rapid changes in client preferences, communications, technology, products and delivery channels, driving a successful and sustainable private banking or wealth business requires great skill. These businesses must be able to adapt to uncontrollable environmental changes and have well-managed responses. They must also have a thorough and in-depth understanding of the evolution of the private banking client through the years.

Further, wealth managers must adopt different models for profiling and managing ‘old-money’ and ‘new-money’ clients, and should devise effective acquisition strategies to close what I call the ‘20-year billionaire wealth gap in Africa’. This may involve challenging some common and strongly held beliefs about clients. For example, the belief that all Millennials are tech savvy and that investing heavily in technology will attract this cohort may be misleading. A few companies have learned that the hard way, pouring money into untested artificial intelligence (AI) systems or tools and only realising after repeated failed attempts at implementation that such tools were worthless.

The growth of wealth in Africa and the rising number of USD millionaires will shape the type of wealth management solutions that are demanded by customers. As such, wealth managers continue to face pressure to be more innovative and to align the needs of their clients in the new wealth class with the solutions they provide. Family offices in Africa, for example, are becoming more relevant to the continent’s growing HNWI population.

A new reality
The increase in wealthy Africans holding second citizenships means wealth managers must ensure such clients are protected at all times. It is important to understand that most developed markets place a tax on income an individual makes anywhere in the world. Regulatory requirements mandated by the Common Reporting Standard, which covers the automatic exchange of information on bank accounts between tax authorities in different jurisdictions, aim to reduce tax evasion through the cooperation of respective tax authorities. In the US, the Foreign Account Tax Compliance Act is targeted at US citizens either living in the US or abroad, and seeks to tie all offshore earnings back to their profiles in the US in a bid to reduce tax evasion.

With proper tax planning, private clients can reduce their tax burdens and improve tax efficiencies on their wealth. Wealthy Africans and, in particular, HNWIs holding US citizenship must have a clear line of sight on this. A good number of HNWIs rely on their wealth managers to make the appropriate introductions to competent tax advisory firms. For example, in October 2018, Nigerian President Muhammadu Buhari signed a presidential executive order introducing the Voluntary Offshore Asset Regularisation Scheme. The scheme allowed taxpayers who defaulted on the payment of taxes on their offshore assets in the last 30 years to pay a one-time levy of 35 percent within a period of one year, starting in October 2018. This enabled them to have immunity from prosecution.

It’s also important to take generational and succession planning into consideration. Planning for Generation X or Millennial successors or heirs to wealth introduces its own set of complexities. Children of HNWIs often end up living in countries other than that of their parents’ birth. Assumptions about them taking over their families’ businesses in Africa can therefore be misplaced, and understandably so. In Africa it is very common for high-net-worth families to send their children to study in schools in Europe and the US. Living abroad sometimes weakens the emotional and cultural ties that these children hold with their home countries, with some eventually choosing careers or vocations totally unrelated to their core family businesses. In this case, it is the wealth manager’s responsibility to put together succession planning structures that ensure the continuity of their clients’ businesses.

The growth in Africa’s HNWI population means wealth managers need to review their capability frameworks with the understanding that gaining private clients is becoming a lot more competitive. Portfolio performance alone can no longer suffice as a tool for retention, but must be supported by deeply personalised relationship strategies that are in sync with the client’s needs and preferences. There must be significant value added outside of the stellar performance of the client’s portfolio. The adoption of AI and algorithm scripts, even with the next generation, can never be a substitute for a real, personable client interface that is sensitive to the client’s individual needs. Managing their personal wealth should therefore always be a combination of sound technical skills and a strong emotional or even cultural connection.

Looking to the future, the source of wealth for private clients is set to change as the next generation enters the labour market. While the bulk of Africa’s billionaires have wealth embedded in industrial activities, resources and real estate, the next generation may have made their wealth in technology start-ups and other 21st-century sources. Wealth managers have to live up to these realities and brace themselves to cater to the needs of a generation that has vastly different values and expectations to its predecessors, but still seeks sound results.