Africa’s wealth management opportunity
Rising household incomes and the technology-driven democratization of finance are driving the growth of wealth management in Africa. As savings pools become deeper and less concentrated, the industry can help channel much-needed capital to fund economic development.
Widespread inequality across Africa means that there are relatively few individuals who meet the traditional definition of a wealth management customer.
South Africa’s Gini index value — a measure of income inequality — is the highest in the world, with Namibia taking second place, noted local independent wealth management consultant Bekithemba Mafulela, Co-founder and Chief Visionary Officer at SyTra Consultancy in Pretoria, South Africa. “That means that over 90% of the financial assets in South Africa are controlled by just 5-10% of the population,” he said.
Similar concentrations of wealth are apparent in significant wealth management hubs located in the other corners of Africa: Egypt and Morocco to the north, Nigeria to the west and Kenya to the east, according to Ahmed Abou El-Saad, who is based in Cairo, Egypt, and is Head of Regional Asset Management for the Middle East, North Africa and Turkey, at Azimut Group.
“And we see a lot of emerging wealth management hubs, mainly Mauritius,” he added. These countries also have the highest numbers of millionaires on the continent (see Figure 1).
In the whole of Africa, there are now an estimated 135,300 high-net-worth individuals (HNWIs) with liquid investable wealth of at least USD1 million, according to the 2024 Africa Wealth Report published by Henley & Partners. That is about as many HNWIs as in the Chinese capital of Beijing alone.
For the moment, Africa’s wealth management market is also relatively small, with wealth managers and private banks holding an estimated USD150 billion of HNWI wealth as of 2022. But it is growing fast, and is forecast to reach USD240 billion by 2032, according to Henley.
Accumulation phase
Across Africa, people live in the hope of greater prosperity in the future. This hope is anchored in the belief that the continent will overcome its historical problems — including insufficient infrastructure and institutional failures — and be able to take advantage of its abundant natural resources and demographic boom (see Figure 2) to become a major driver of global economic growth in the coming decades.
As such, and because the continent’s population is relatively young, its wealth management industry is focused more on wealth accumulation than in developed markets such as the US and Europe, where wealth preservation is a bigger priority, said Thato Mashigo, a Portfolio Manager at Sanlam Private Wealth in Johannesburg, South Africa.
These dynamics demand a particular approach to business. “You need to be entrepreneurial in terms of how you look for clients, establishing contacts with younger individuals who have the potential to become high-net-worth,” said Mashigo. “There are already enough wealthy people in Europe or Asia to target, but here you have to take a view and say, OK, this person is mid-level in this big company, but they’re probably going to be C-suite 10 years from now, and you start the journey with them.”
Potential new clients who may have accumulated wealth through rapid growth in their businesses can be difficult to attract because they often look for similar returns in their other investments, added Mashigo. Capital markets, for example, can seem pedestrian in comparison to the growth of entrepreneurs’ own firms.
“They’re often happy with the concentration risk of keeping 99% of their wealth in their businesses because they foresee much higher returns over the next decade that way,” said Mashigo. “Others may have a more cautious mentality and want to derisk or diversify, so they’re more willing to go along that journey.”
Many clients in Africa are also more interested in value-added services that wealth managers can provide. For example, because it is more difficult to access credit in Africa than in developed markets, clients may want services like equity-backed and securities-backed lending.
Wealth managers might also be called upon to provide clients with assistance in obtaining hard currency and accessing offshore banking.
In lower segments, the industry depends too much on selling products and not on providing holistic financial planning, said Mafulela.
“Most of the big financial groups primarily renumerate and incentivize their financial advisers to distribute products, so it's very commission-driven, product-driven," he added. "To rectify this, there needs to be regulation of commissions, and increased efforts to improve financial literacy so that clients understand what real financial advice looks like and what value it can bring to them and their personal finances."
Democratization drives growth
There could be an even bigger opportunity to serve the continent’s fast-growing middle class, who cannot be viably served by human financial advisors. As in the rest of the world, technology is helping to democratize access to wealth management products for this segment.
Online investment platforms, micro-investing and robo-advisors fulfil an important social need. Economic uncertainty, regular currency crises and recurrent inflation mean that “investing is a necessity rather than a luxury in Africa,” said Abou El-Saad.
“The key in Africa is to democratize investment and not let it be a privilege for high-net-worth individuals, corporates and large asset owners,” he said.
There is no uniform estimate of the size of the middle class in Africa, but according to the African Development Bank’s latest calculation, it stood at 350 million in 2010 and is on track to reach 1.1 billion by 2060. To be sure, the bank’s definition of what constitutes middle class — people who can afford to spend between USD2 and USD20 per day — is quite modest, but this would put them within reach of a new wave of fintech-driven investment products.
“Some people initially invest USD50 or USD100, but then continue putting in similar amounts on a monthly basis,” said Abou El-Saad. “We really encourage them to invest incrementally over time to achieve their financial objectives.”
For this growth to continue, the continent’s capital markets need to grow in size and depth, “so the wealth management industry can start creating products around them,” he added. This could happen through regional integration of capital markets and harmonization of trading rules. Moves like this could enable someone in Nigeria to invest in Kenya or Mauritius, for example, paving the way to a larger universe of opportunities and more diversified portfolios.
Growth in alternatives
Demand for alternative investments is growing fast among wealth management clients across the continent. “In Africa, generally speaking, a lot of wealth is in unlisted private assets, so there’s a lot of familiarity and comfort among clients to accept illiquidity for potentially better returns,” said Mashigo.
Wealth managers need the connections to open doors to those opportunities. “That’s where you can add value,” added Mashigo. “For example, facilitating access to a private company that exhibits high growth potential, and which is raising a new round. Those are the opportunities that high-net-worth clients find exciting, more so than only holding listed shares in the portfolio.”
Further growth in alternative investments could be driven by governments’ desire to raise funding for economic development, said Mafulela. South Africa, for instance, “has created new tax-deductible vehicles where you can invest in alternative investments.”
Though this provision, known as Section 12J of the Income Tax Act, ended in 2021, South Africa continues to provide tax incentives for investment in renewables through Section 12B, first introduced in 2016 then expanded considerably towards the end of 2023 with Section 12BA, which allows businesses to claim an upfront deduction of 125% of the cost incurred in acquiring renewable energy generating assets.
"Whilst South Africa still faces power challenges and generation capacity constraints, the worst issues are being slowly resolved by this innovative renewable energy infrastructure funding solution. I think more of that can be done in different industries that are equally starved of capital, including SMEs in particular," Mafulela added.
This illustrates how wealth management, capital markets, infrastructure development and economic progress in Africa are interlinked. Together, they could underpin a brighter future for the continent, creating a virtuous circle and feeding each other’s growth in the years ahead.
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