The rise of African UHNW individuals
Citywealth speaks with experts who share insights on the rise of African UHNW individuals, as they have clients who either are African UHNWIs or are doing business with African companies.
As fintech has grown in the entrepreneurial region of Africa managed by US-based investors, the rise of African UHNW individuals has become a phenomenon. We speak with experts who share insights on the rise of African UHNW individuals, as they boast clients who either are African UHNWIs or are doing business with African companies.
The fintech upsurge
John Félicité, Business Development Director, Africa, at Ocorian talks about the growing fintech sector and its connection with the young tech-savvy African entrepreneurs: “Fintech is the fastest growing start up sector in Africa, with over 5,200 companies across the continent as of 2022. The growth in this industry is a result of the increasingly large young tech-savvy population living in urban areas. Cities in Africa are changing and urban growth is expanding so the influx of many young graduates with the ambition to make a difference is having a long-lasting effect.” Dwelling upon the fintech sectors rising in Africa, John says: “Fintech in Africa is about online banking, digital payments and cross-border payments with the top eight most well-funded fintech companies having a combined value of $2.6 billion. They include companies such as Nigerian-based OPay and Wave, which is based in Senegal. Both are mobile money solutions.”
Mo Baluchi, member of the Africa Business Community and Senior Manager at Standard Bank, gives an overview on the close relationship between Africa and his firm: “Our client base is predominantly Sub-Saharan African. Standard Bank is South Africa’s largest bank ranked by asset and earnings. We have extensive operations in 20 African countries and our purpose is ‘Africa is our home, we drive her growth’.” Focusing on fintech, Mo adds: “Regarding fintech, there has been a relentless upsurge in this space with Nigeria being a key driver at country level. A significant amount of this growth was driven by necessity when lockdowns came into force. The cash economy started to decline and e-commerce, utilising fintech, started to rise exponentially. Crypto transactions are also prevalent in Africa with Kenyans, Nigerians and South Africans particularly embracing this innovative new asset class.”
Akin Coker, Partner at Buzzacott who manages the private client team, stresses the importance of the fintech industry in Africa, giving details about the sectors African UHNW individuals come from: “Given the creativity of African entrepreneurs, it is not surprising to see so many successful businesses emerging from the fintech sector. Some of the businesses we are seeing in this sector are investment research consultancies, online/phone payment platforms, money transfer and investment management. These businesses have been hugely successful in expanding across Africa and have turned their focus on expanding into Europe and the US.”
John also adds that: “Many of the fintech stars across the continent over the past few years have been driven by home-grown talent and, more importantly, increasingly local funding from African UHNWIs as well as Development Finance Institutions. None of them can be defined as US venture capitalists. There are some US-based investors who are very focussed on the opportunities in Africa, such as World Bank as well as Goldman Sachs.”
African UHNWIs: issues to overcome
Talking about current issues that African UHNW individuals are facing in the present scenario, Mo Baluchi outlines: “It’s clear that some still see Africa as one country rather than a continent of 54 different countries. The challenges that many African UHNWIs face are familiar and similar with some nations faring better than others. Issues such as on-going political instability, endemic corruption, brain-drain, electricity outages and capital flight are just some of these problems. (U)HNWIs and Private Offices feel these acutely however they are obviously in a better position to navigate these headwinds than the general population.”
Akin Coker comments on the transition of wealth between generations and inflation: “One of the biggest issues faced by African UHNWIs is the transitioning of wealth from one generation to the next. As the world continues to shrink, in the sense that it is so much easier for everyone to move across the globe, Africa has probably been affected by this more than most. The children of UHNW families who have typically been trained abroad, are taking up residence in different countries around the world, mainly in the US and Europe. As a result, many of them have a completely different world view to their parents and sometimes even to siblings who have remained in their home countries. The fact that many of these families do not have robust governance in place means the impact of friction and disputes can be costly and far reaching. This is often compounded by the heads of these families holding on to the reins for too long, not taking professional advice on estate planning or delaying the implementation of this advice, often until it is too late. Another issue facing African UHNWIs where a large part of their wealth is tied up in their home countries, is the combined effect of inflation and currency devaluation on their net wealth. For example, in Nigeria the parallel Naira exchange rate against the British Pound has depreciated by more than 100% in just five years and inflation is currently running at 21%.”
John Félicité identifies general political tensions, economy and security as the major issues: “UHNWIs in Africa face the added burden of how to maintain their wealth in an environment with increasing political tensions and economic stagnation combined with currency devaluation. The next issue on their minds is security. For the super wealthy that means the acceptance that life with security guards in front of the home is normal.”
There aren’t just downsides when it comes to Africa. To this regard Mo adds: “There are, however, many positives about the future for Africa which it could be said is the ultimate opportunity in Wealth Management. The Africa Wealth Report 2022, by Henley & Partners, estimated that Africa’s total wealth is $2.1trn with 3 countries – Nigeria, South Africa and Egypt controlling over 50% of this. Favourable demographics, improving governance and infrastructure, rich cultural heritage and diversity, the entrepreneurial mindset and tech savviness of many of the continent’s citizens all point in the direction of continued hope and success.”
Private wealth trends around Sub-Saharan Africa? Our contributors believe that…
… across the African continent the key trend in private wealth we are seeing is a desire to focus on how to manage the family business in an ever-competitive environment whilst still being able to generate cash flow to maintain working capital. Many UHNWIs are now realising that taking the long-term view and investing locally or at least regionally into real businesses is both philanthropic whilst also economically advantageous even with returns in local currency.
An understanding of the practical side of how to do business in Africa is key and many are able to become local partners for the foreign firms seeking to enter the market to tap into the growing population which is set to be 1.5 billion by 2030 when around 1 in 5 people on the planet are expected to be living in Africa. We are seeing many of the diaspora and next gens taking advantage of family know-how to position themselves as the bridge between the developed and developing worlds, where copy and paste business school models will simply not work. John Félicité, Ocorian
… since the advent of the pandemic, we have seen increasing discussions for families, in West Africa, around wealth structuring. Previously taboo conversations around the mortality, succession planning and asset protection for the Family Business are now taking place, sometimes for the first time. In South Africa, many are generally familiar and already knowledgeable regarding trusts, foundations and corporate structures. A trend we see here is of (U)HNW families tending to seek providers of scale who are truly committed to Africa and who have the correct safeguards in place, such as appropriate levels of indemnity cover should something go wrong. South Africans also seek firms who understand the country’s nuances and who are constantly striving to develop and provide the best products and services whilst remaining committed to the continent as a whole.
International Finance Centres such as Jersey and the IOM have also conducted some excellent work in enhancing awareness around Private Wealth providing access to jurisdictional diversification and innovative solutions such as Jersey International Savings Plans (ISPs). Jersey Finance also commissioned the Centre for Economics and Business Research (CEBR) to provide key research producing a ‘Global Value Chains’ report which showed that of the £170.3bn in global GDP that Jersey contributes and supports, £6bn flowed into Africa. Mo Baluchi, Standard Bank
… We are seeing increased investment in Europe from South and West Africa. The nature of the investments has changed. There has always been an investment in residential property, and this continues; however, we are seeing more and more investment in African businesses expanding into Europe. In over 35 years of advising African clients, I can definitely say that there is a stronger desire to not only be compliant, but have the right structures in place to ensure that the business can be passed down to the next generation efficiently. While the traditional trust structures have not been hugely popular among African families, we are seeing an increased use of Private Trust Companies (PCTs); mainly because these structures allow a greater deal of control, particularly when it comes to ownership of family businesses. Akin Coker, Buzzacott
Written by Silvia Ricciardi
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