A new generation of High Net Worth Africans could provide the financial muscle Africa needs to shift its fortunes.
Young Africans are increasingly expressing their ambitions and desires to be wealthy. Not only that, but they are aspiring to create intergenerational wealth. From land expropriation debates on Twitter to the enthusiasm surrounding the film Black Panther, set in a fictitious African country with great wealth, the topic of African wealth is taking centre stage. And whether in fact or fiction there is a growing awareness amongst Africans that wealth has the power to drive change and development to eradicate inequality and poverty on the continent.
The definition of wealth can be as debatable as that of inequality; however in monetary terms wealthy individuals, known as high net worth individuals, (HNWIs) are individuals with a minimum of US$1 million in net investable assets. The HNWI includes millionaires (US$ 1 milion – $10 million) multi-millionaires (US$10 million – US$30 million) and Ultra HNWIs (US$30 million or more ) in net investable assets. At the end of 2016 there were more than 13 million HNWIs globally, owning investable assets in the region of US$ 70 trillion.
African HNWIs accounted for a little over 1.1% of HNWI globally and owned 1.2% of the wealth assets. According to the AfrAsia Bank Africa Wealth report of 2017, the number of HNWIs in Africa is expected to rise by 36% by 2026. It is also estimated that at the end of 2016 US$132 billion in African HNWI assets were managed by wealth management companies in South Africa, the UK and Switzerland.
The wealth of individuals in Africa is the financial muscle that can potentially accelerate sustainable change for the continent. Whilst some may advocate for African governments to increase tax collection from HWNIs, getting more HNWIs to be committed to allocate their wealth to return-generating sustainable finance alternatives could complement governments’ roles in financing development and ultimately, sustainable change in Africa.
The goal of sustainable finance is to allocate more capital towards return-generating investable opportunities in the real economy in a manner that achieves sustainable development goals such as fighting social inequality or climate change, promoting gender equality and biodiversity. This is not only a European or US trend. According to the latest African Investing For Impact Barometer, as of the end of July 2017, more than US $428.29bn of investment assets in the Sub-Saharan regions of East, West and Southern Africa were allocated to investment strategies which seek to generate social or environmental impact whilst generating investment returns. However, the investing for impact industry is still in its infancy on the continent. The Barometer, which is published annually by the Bertha Centre for Social Innovation and Entrepreneurship at the UCT Graduate School of Business, reveals that while investment opportunities in sustainability and impact themes such as renewable energy, agriculture, inclusive financial services, socio-economic transformation as well as infrastructure exist, they are still largely untapped.
Global asset and wealth management trends are pointing to an increased demand for these approaches to investment among HNWIs. European surveys have pinpointed HNWIs as an important agent of change and acceleration of sustainable finance notably around sustainability and impact investing. A similar survey in South Africa on a database of more than 800 HNWIs demonstrates that despite some present investment and future appetite from South African HNWIs, the lack of marketing and information provided by fund managers and investment advisors appears to be hampering further uptake.
Undoubtedly, top fund managers in Africa who are leading the way on sustainable and impact investing could do a better job to connect their private wealth clients to the positive financial and sustainable impact they could achieve for the continent through their wealth – without sacrificing returns.
Much also still need to be done to make sure that the wealthy African elite – young and old – are aware of the options available and that they understand that they themselves hold a good deal of power to bring about positive change in their respective countries and on the continent as a whole. Wealthy investors should be asking more questions of their fund managers as to where their funds are being invested and ideally, leading by example, in investing for impact and steering the continent towards a brighter future.