Africa’s rich club growing

Kenya is home to five new ultra-wealthy individuals, raising the number of those with Sh2.76 billion ($30 million) and above in net worth countrywide to 115, up from 110 in 2013, according to  The Wealth Report by analyst firm WealthInsight.

This figure has grown remarkably since 2004, when the country had only 56 such individuals.

The Wealth Report rates the world’s wealthiest people in order of dollar billionaires (those with a net worth of at least $1 billion dollars), centa-millionaires (those with $100 million [Sh9.20] billion in disposable assets), and ultra-high-net-worth individuals (those with $30 million [Sh2.76 million]).

Those with less than $30 million are referred to as high-net-worth individuals (HNWI), or simply millionaires, and typically have investable finance — financial assets excluding primary residence — in excess of $1 million (Sh92 million).

ONE KENYAN

The country now has 32 individuals worth at least $100 million, also known as centa-millionaires, whose number increased  by just one since 2013.  Africa as a whole has 524 centa-millionaires, following an increase of 15 since 2013; this is expected to grow to 815 by 2024.

Globally, nearly 1,180 people became centa-millionaires in 2014, taking the world’s total population of those worth more than $100m to 38,280.

However, only one Kenyan features among the ranks of the world’s 1,844 dollar billionaires. There are 30 such individuals in Africa, while most of the billionaires are in North America (with 553) followed by Asia (492). Worldwide, about 53 new billionaires were created between 2013 and 2014, pushing global membership of this exclusive club to 1,844, an 82 per cent increase from the number recorded in 2004.

At least 364 Kenyans earned the enviable title of high-net-worth individuals, having crossed the $1 million (Sh92 million) mark in net worth last year. High net worth individuals are forecast to increase by nearly three-quarters in the next 10 years to reach 15,249 in 2024.

The circle of Kenya’s dollar millionaires expanded to 8,764 in 2014, a 4.3 per cent increase from 8,400  the previous year, according to the research. Currently, there are an estimated 13 million dollar millionaires globally.

Kenya has the largest number of the ultra-wealthy in the East Africa region, and Knight Frank, the publisher of The Wealth Report, said the country’s population of such individuals — those with at least $30 million (Sh2.76 billion) in assets — will increase by 82 per cent in the next decade to 209.

Kenyan HNWIs outperformed the worldwide HNWI average during the period under review, with their number increasing by 24 per cent while worldwide, the number  declined by 0.3 per cent.

The rise in US-dollar-based HNWI wealth was notable, given that  it occurred at a time when there was a significant depreciation of the shilling against the US dollar.

Kenya has the fourth highest number of HNWIs in Africa, coming after South Africa, Egypt and Nigeria.

But while Kenya’s wealthy population is the highest in East Africa in absolute numbers, Tanzania is set to record a faster increase in super-rich individuals, doubling from 78 in 2014 to 156 by 2024.

Uganda also features in the list of the top 100 countries predicted to grow their UHNWI numbers rapidly. Its UHNWIs will increase to 35 by 2024, a 67 per cent growth from 21 in 2014.

Uganda’s dollar millionaire population was 1,556 in 2014, but is set to increase to 2,523 by 2024.

In the larger Africa, Ivory Coast and Nigeria — with +119 per cent and 90 per cent forecast growth respectively in UHNWIs — are tipped as the countries most likely to experience the highest  growth in the next decade.

Reforms in Nigeria are said to be helping the country build credibility among foreign investors. Nigeria is also said to have the highest number of UHNWIs hungry to buy luxury international property, comprising a significant sector of the market in key cities like London and New York, and increasing their activity closer home in South Africa and Mauritius.

This latest increase means 65,335 people have joined the ranks of the ultra-wealthy in the past decade — representing a 61 per cent increase. In total, there are now 172,850 individuals in this group that  holds wealth totalling $20.8tn, an increase of $700bn in 2014.

ASPIRATIONAL MIDDLE-CLASS

This growth is set to continue in the coming decade, with the global population of UHNWIs forecast to climb by 34 per cent to a total of almost 231,000.

Africa is one of the few remaining regions in the world where there is huge potential for growth. It has a growing and young population that is fuelling demand and pushing up economic activity and wealth creation.

The continent also boasts a strong brand of entrepreneurialism, which has resulted in a clear shift towards substantial growth in HNWI numbers in recent years.

Given that Africa currently accounts for 15 per cent of the world’s population but delivers only four per cent of global output, it unquestionably offers great opportunity over the medium and longer term.

In developing countries, significant amounts of wealth are already being created by a growing and increasingly aspirational middle class.

And just in case you were wondering where the majority of Kenyans fall, according to influential economists Branko Milanovic and Shlomo Yitzhaki, you fall under the global middle class if you earn between $4,000 (Sh367,228) and $17,000 (Sh1,560,719) a year. That translates to a monthly salary of between Sh30,600 and Sh130,000.

Most of the super-rich have substantial portions of their wealth decked in real estate, cementing the position of property as the cornerstone of many UHNWI investment strategies — it accounts, on average, for almost a third of UHNWI portfolios.

“There’s a high concentration of wealth in Kenya because it’s a regional hub,” says Ben Woodhams, the Knight Frank Kenya managing director. “Kenya’s ultra-wealthy have been investing in overseas property in the past and have now started focusing inwards, raising their stakes in the local property market. Real estate is the world’s primary investment of choice for the wealthy and Kenya is certainly no exception.”

Andrew Shirley, editor of The Wealth Report, says that “At least $100 million (Sh9.2 billion) is coming from Kenyans in the diaspora into the country every month”, and that “more of the mass affluence is being invested back home”.

Globally, 37 per cent increased their exposure to property as an investment in 2014 and 35 per cent expect the trend to continue in 2015. Residential property is the most popular sector to invest in, with 81 per cent of wealth advisers saying their clients were becoming more interested in it. Offices were the next most popular property type, at 59 per cent.

Although overall HNWI growth was positively influenced by rising commodity prices and business growth, particularly in construction and real estate, bricks and mortar are not the only tangible assets that are in demand.

Outside property, equities are predicted to be the most popular investment class in 2015, with a net balance of 45 per cent of those taking the survey expecting their clients’ exposure to stocks and shares to increase in 2015. This builds on the growing appetite for riskier investments.

The telecoms, banking,  transport and logistics sectors make a bulk of the remainder, while the so-called “investments of passion” — such as art, wine and classic cars — continue to attract more interest.

GENDER IMBALANCE

Sixty-five per cent of the world’s UHNW population is self-made, as opposed to 19 per cent who have inherited their fortune, and 16 per cent who  inherited and grew their wealth. These proportions change dramatically by gender, as only 12 per cent of the world’s UHNW population is female, and of these, only 33 per cent are self-made, as opposed to 70 per cent males.

At least 22 per cent of self-made UHNW individuals derived their wealth from the finance, banking or investment sectors.

Head of Wealth and Investment at CfC Stanbic Bank Anjali Harkoo said: “We have witnessed an increase in the number of ultra-high net worth individuals on our books that back this trend. For them, it is  becoming increasingly obvious that they are looking beyond just banking and the overall management of their wealth is critical.”

A potential increase in wealth taxes and increased scrutiny of the wealthy by governments followed closely in the list, at 81 per cent and 80 per cent, respectively.

Interestingly, according the report, UHNWIs top concerns currently include potential increases in wealth taxes and increased scrutiny of the wealthy by governments.

“The road to greater riches is not always simple, and the survey results highlight a number of issues that UHNWIs believe could hinder their ability to generate more wealth. Interestingly, it was not the global geopolitical and economic issues that tend to spook stock markets that were of the most concern, but more personal issues,” says Andrew Shirley, editor of The Wealth Report.

Family succession issues were, in fact, the number one worry, with 85 per cent of respondents saying their clients were concerned about the handover of family wealth to the next generation.

A potential increase in wealth taxes (81 per cent of those polled) and increased government scrutiny of wealth (80 per cent) were the second and third most vexatious issues. Seventy-six per cent of the respondents said the growing power of the Internet, both in terms of cybercrime and the ability to invade privacy and damage reputations, highlight it as an area of concern.

Instability is a risk to any form of economic growth. This is particularly true in Africa. A major sustained political upheaval or a similar incident could detract from the important projects being implemented that should deliver growth. There are many countries in Africa, all at different stages of development. The ideal is that each of these countries remain on track towards economic development and growth. But if any of them, especially major nations such as Nigeria, Kenya, South Africa or Angola, took a sudden change of direction, that would pose a risk to Africa’s growth story.

The report also addressed uneven distribution of wealth, which has become an increasing subject of debate over the past few years. Some, such as the controversial French economist, Thomas Piketty, argue that governments should take action and levy higher taxes on the rich in order to re-distribute wealth. Others, like Dr Pippa Malmgren, believe that higher taxes could actually prove a barrier to economic growth, undermining the opportunity for wealth creation across every stratum of society.

THE NUMBERS  

1

Kenyan among the ranks of the world’s 1,844 dollar billionaires.

4

The position Kenya ranks among the highest number of high-net-worth individuals (HNWIs) in Africa, after S. Africa, Egypt and Nigeria.

5

New ultra-wealthy individuals, raising the number of those with Sh2.76 billion ($30 million)

364

Kenyans earned the enviable title of high-net-worth individuals, having crossed the $1 million (Sh92 million) mark in net worth last year.

53

New billionaires worldwide, were created between 2013 and 2014, pushing global membership of this exclusive club to 1,844, an 82 per cent increase from the number recorded in 2004.

2

Countries in the larger Africa, Ivory Coast and Nigeria — with +119 per cent and 90 per cent forecast growth respectively in UHNWIs — are tipped as the countries most likely to experience the most growth in the next decade.

524

Centa-millionaires in Africa, followed an increase of 15 from 2013; this is expected to grow to 815 by 2024.

1,180

People globally, became centa-millionaires in 2014, taking the world’s total population of those worth over $100m to 38,280.

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GLOBAL OUTLOOK

The annual pace of wealth creation quickened in 2014 compared with 2013, albeit slightly.

The number of UHNWIs grew by 3.1 per cent last year, compared with 2.9 per cent in the previous 12 months. But at the differences were more marked at the regional level. Most notably, Asia overtook North America as the region with the second-largest UHNWI growth.

Some 1,419 people moved past the $30-million-plus mark in Asia in 2014, after an increase of fewer than 1,000 in 2013. Europe held onto the top spot with the most new entrants into the ultra-wealthy bracket in 2014.

The ultra-wealthy in Asia now also hold more in total wealth, with net assets of $5.9 trillion, than those in North America, with $5.5 trillion. However, with a $6.4 trillion treasure chest, European UHNWIs still control the most wealth.

This is in spite of increased uncertainty towards the end of the year over plunging oil prices and the strengthening dollar, which hit emerging markets, and natural resource exporters.

Ouliana Vlasova, head of content at WealthInsight, says the growth in wealth could, perhaps have been higher had the world economy picked up more strongly in the second half of last year.

WealthInsight predicts the number of ultra-wealthy people will grow globally by 34 per cent between 2014 and 2024, up from a forecast of 28 per cent between 2013 and 2023

But it is also notable that it was Monaco, the well-established hub for wealth, that topped the list for growth last year, with a 10 per cent expansion in its population of UHNWIs. The number of centa-millionaires in the principality jumped by 10 per cent in 2014, far above the European average of 3.2 per cent, while the number of billionaires rose from 11 to 12.

It is likely that the tax-free environment and low entry hurdles for residency in Monaco have become a greater attraction for those concerned about  discussions of increased taxes on wealth and assets.

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REAL ESTATE

Rebalancing of economic power in Africa

According to Anthony Havelock, Head of Agency at Knight Frank Kenya, the sector to watch is the property industry, particularly investments in Grade A office and retail spaces.

“The decline of Cairo’s commercial influence at the northern end of Africa, and the realisation by international businesses that they cannot run the entire continent from Johannesburg in the southern tip, has created a vacuum that Nairobi is eagerly filling,” says Mr Havelock in an analysis of the Kenyan wealth portfolio.

With the arrival and expansion of a string of multinationals, the city is now firmly established as one of Africa’s leading hubs, he says.

Local developers have responded by building Grade A quality office space that is attracting top-quality tenants paying dollar-denominated rents for leases that include fixed annual increases.

“Generally, rents are perceived as good value by international firms, suggesting there is room for healthy future rental growth and also yield shift, which in turn is attracting global investors,” he says.

In addition, newly discovered oil and gas deposits are creating something of an energy boom, while all sectors of Kenya’s economy, apart from tourism, are growing — GDP is rising at around 5.5 per cent each year.

This is largely being driven by a burgeoning middle class hungry for Western-style goods and shopping experiences that, by and large, seems impervious to political controversies and terrorism.

This year should see the opening of around 1.8m square feet of First-World shopping malls in Nairobi, with new international retailers committing to the region for the first time.