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Wealth Management Trends In Africa

By MICHAEL PREISS

22 October, 2012

Wealth Management Trends In Africa

By Michael Preiss

 "With an economic growth forecast of 5.4% for 2012, Africa ranks as the second
fastest-growing region in the world, after Asia."

Africa, in this decade, is going through a similar, if not more powerful transformation than Asia went through in the 1970s. According to the International Monetary Fund (IMF), seven of the 10 fastest-growing economies in the world are now in Africa. With an economic growth forecast of 5.4% for 2012, Africa ranks as the second fastest-growing region in the world, after Asia.

Africa's growth is balanced on natural resources exports. Africa's growth story is also about rising domestic consumption.

According to United Nations research, Africa as a region will experience the highest increase in population change by 2030. This long-term demographic trend favors many African nations and this in turn is leading to higher GDP growth and wealth creation. In the Western world, the number of retirees is growing rapidly while the workforce is hardly increasing or even contracting.

Africa's growing trade links with other emerging markets such as China- whose growth drives Africa's natural resources exports and demand- have raised its strategic importance in banking and the financial services industry. This will spark greater demand for wealth management services.

This is especially the case should the IMF forecast be correct that sub-Saharan Africa's share of global GDP, currently hovering around 2%, will rise to over 5% by 2030.

On the other hand, the IMF predicts that Europe's share of global GDP will decline from the current 27% to only 14% in 2030. The United States' global share of GDP currently at 24% is expected to decline to 12%.

China is Africa's biggest investor with more than $56 billion in investments. China's economy is rising from currently 9% share of global GDP to 24% by 2030, according to the IMF. China is too large and too important to ignore, and these projections have prompted many investors to develop a China strategy. But, the same investors do not yet have any African investments or strategy.

In terms of wealth creation, Africa is increasingly leading the way. According to Capgemini's 2012 World Wealth Report, Africa's HNWI (high net worth individual) population rose 3.9% over the last two years. This compares to a global increase of 0.8%. Wealth in Asia Pacific rose by 1.6% and 1.1% in Europe, while North America had a decline of 1.1%. Africa's wealth creation is only surpassed by Latin America, where the number of HNWIs increased by 5.4%.

Banks are taking notice and are increasingly prepared for an African consumer banking boom, as wealth begins to trickle down and the middle class grows, while the middle class in not shrinking.

From an investment point of view, many people need to be aware that during their working lives they will need to put enough money aside to live comfortably when they reach an age when they cannot work any longer. Simply putting money on deposit will not be the solution; in fact, it will become a big problem because of the low and negative real interest rates in many countries.

Many investors still believe that there is a risk in doing business in Africa due to high corruption.

However, according to Transparency International's Corruption Perception Index, 35 African countries rank ahead of Russia. In the World Bank's most recent Ease of Doing Business rankings, 14 African countries ranked ahead of Russia, 16 ahead of Brazil and 17 ahead of India.

In fact, Africa is rapidly democratizing. Last year alone, saw a number of democratic elections, successful referendum in South Sudan, the Nigerian election and the peaceful transfer of power in Zambia.

Entrepreneurial spirits are high in Africa and African business leaders are often agile and adaptable in turning opportunity into wealth.

Given all of the above the outlook for wealth management industry in Africa is one of the most exciting in the world today.

About the Authors

MICHAEL RAINER PREISS IS AN INVESTMENT ADVISOR, SPECIALIZING IN FRONTIER AND EMERGING MARKETS