The pursuit of wealth is among the most universal of human endeavors. Regardless of their culture, their time of existence or the value system of their society, throughout civilizations and whichever deity they may have praised, humankind has pursued wealth.
In a world of rapid advancements in disruptive tech, shortened life cycles of firms and globalized market volatility, designing a strategy to preserve wealth is a science and an art.
Throw into this salad bowl of complexity the emerging asset classes, the democratization of capital markets, the digitization of money and the generous supply of influencers who have no track record of successfully managing client wealth, and you have a festival of financial potholes to fall into at every turn. So, the message is clear: investors beware.
But although times are treacherous, they are also good. In many respects, we have been lulled into a false sense of security by the longer-than-average period of global peace
that humanity has enjoyed and the global hegemon of the United States.
However, we are also living in a world where global inequality, slave-wage-fueled forced labor and the lack of diversity, equity and inclusion in the financial markets are real threats to the sustainability of the system of wealth creation and distribution. The continent of Africa and Africans themselves have a rather curious relationship with wealth.
Why is there a rising wealth inequality in Africa?
Pop culture and celebrity status have sold a brand of wealth accumulation that is simply not attainable for majority of Africans. What started out as an aspirational culture has become a status quo of attaining relevance for the ‘clout chasers’ found in the popular arts and culture.
Africa’s story is more one of polar domination, with the largest wealth management centers traditionally situated in the most extreme south, South Africa, and the most extreme north, Egypt and Morocco. The rise of frontier economies that are attracting new wealth by positioning themselves as preferred investment destinations is challenging this narrative.
Mauritius and the Seychelles have been the most deliberate with this strategy. While the number of millionaires on the continent over the past decade has not increased exponentially, the number of centi-millionaires and billionaires has shot up. This theme means that the continent needs to deal with the industries whose ownership structures perpetuate inequality.
Not only that but it also supports the notion that the continent needs to increase the exposure of and education regarding financial markets to ordinary households. The populations of most countries on the continent have asymmetric knowledge of finance, which constrains the growth of retail participation in financial markets.
What is the new wealth creation strategy?
The tide is swinging in the direction of smaller emerging economies. The delta in new wealth creation has been strongest in countries like Mauritius and Rwanda. Key drivers of this trend are the recognition by these economies that they can attract substantial capital if they have the right regulatory framework. This regulatory regime includes preferential terms for capital gains tax and inheritance tax and an environment that allows for ease of doing business.
The disaggregation of the nation state and the rise of megacities whose economies are larger than the budgets of many mid-sized countries have been themes that have driven creation, preservation and flow of wealth across the continent. Authorities are positioning their cities as preferred destinations for wealth in order to stimulate inflows of capital, talent and prosperity.
All the above factors also spur an increase in consumption and consumption-led growth, while the inflow of talent generally leads to an increase in productivity.
As an investor myself, the emergence of specialist investment offices staffed by highly skilled advisors, transactors and brokers has been a welcome trend in the marketplace.
This network of firms provides one with access to alternative asset classes like art, vintage cars, and limited-edition timepieces whose price escalation has proven a good hedge against insidious of wealth destruction tools: inflation. What is exciting about the prospects for wealth in future for the African continent is the diversification of the sources of creating wealth.
The new economies that are built on technologies, driving inclusion and the now in-vogue environmental, social and corporate governance criteria are attracting new capital into the fold and creating more liquidity in the secondary capital markets.
Over the next decade, the trend of accumulating wealth will continue, but the unanswered question is whether this growth will be more evenly spread and begin to reduce inequality.
This article was first published in the 2022 Africa Wealth Report.