Despite the economic outlook in the region, the high-net-worth segment has been growing over the last decade, reaching a crescendo with the recent entrance of new foreign private banks and wealth management services into the regional market. FORBES AFRICA takes a look at these movements on how the wealthy and ultra-rich in East Africa are changing the way they manage their assets.&nbsp;



BY MARIE SHABAYA



OVER THE LAST decade, five East African nations have seen a net-positive growth in total wealth, according to figures from New World Wealth. Leading the pack are Rwanda (60%), Ethiopia (52%) and Uganda (50%). Delving deeper into this picture, Kenya, a growing economic hub for the region, has the highest per capita wealth in East Africa, and ranks eighth on the continent, at $1,700.



This makes a strong case for the new financial services now available to high-networth individuals (HNWIs) in the region. In fact, East Africa is now a growing market for wealth management services and experts. This is echoed by the changing trends in how this segment has been holding their wealth.



Traditionally, investment options for the wealthy and ultra-rich were concentrated predominantly in land, real estate (property and buildings) as well as cash. Over the last few years, there has been a marked shift with this capital being held in sovereign bonds or fixed income securities.



Why the shift? Charles Mwaniki, a business journalist who has been covering the regional financial markets for over a decade, notes that what we’re seeing now is the result of movements from the past decade, whose effects are now being compounded.



“The big shift I’ve seen is the move towards the professional management of wealth. 



Previously a lot of [wealthy] people were having to manage their own wealth in private family offices or as private individuals but over the last seven years, we were coming out of a period of plenty, between 2004 and 2015, when there was ample opportunity to make money,” he says.



The overall economic climate during this time was one of a financial boom, allowing for the expansion of the HNWI segment in the region 



“It was a two-fold thing. One, it introduced a lot of new money into the economy and a lot of people got wealthy or got money that was investible within that period. Secondly, the people who already had money were making it more easily. It was easy to multiply wealth. So, you didn’t need much help to make money; there were opportunities everywhere…in trade, in the stock market, in bonds. But, from around 2014-15, it suddenly became a lot more difficult to make money here.”



What followed was an extended period of decline in both the stock market and the banking sector. Beginning in 2016, banks restricted their lending to the private sector due to a legislative cap on commercial lending rates.



“Trade also became more difficult. People started realizing [that they] needed help to unlock opportunities, to see where the money is and that is where they increasingly turned to professionals, especially those who had made new money in the decade before. Suddenly, there were no opportunities in the stock market, they didn’t know how to invest offshore, they didn’t know how to play the property sector so they turned to professionals,” posits Mwaniki.



This has seen a rise in dedicated wealth management units in some of the more established banks and lenders in the region, with new entrants joining the market as recently as this year. Stanbic Bank Kenya, formerly known as CfC Stanbic, is one of the larger service providers in the region, providing a private bank offering to both individuals and corporate clients with at least $1 million in investible assets. New entrant, Old Mutual, from South Africa, opened its doors to highnet-worth clients with at least KES 10 million ($83,130) in investible assets in July this year while I&amp;M Capital, a fund manager, launched in mid-2021 and famously raised $5.8 million in its first six months, indicating the growing demand for such services in the region.



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“ PUTTING IT SIMPLY, MOVING CAPITAL OUTSIDE OF AFRICA CAN OFTEN MEAN DIRECT ACCESS TO CHEAPER DEBT FINANCING AND A GREATER ARRAY OF PERSONAL AND FINANCIAL SERVICES TO INVEST BACK INTO THE REGION OR CONTINENT. ” – JON DE JAGER, MANAGING DIRECTOR OF C|T GROUP UK
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A majority of wealth in the region is family-led and organized by kin either in business structures or by ownership. This allows for wealth management efforts to be compounded over the generations, a model which has worked well in other markets. Tsitsi Mutendi, who consults for private family offices in the region draws a line between the services offered by the new private banks and the niche services required for those over a certain wealth threshold. 



“A family office is particularly created for ultra high-net-worth individuals and families. It makes sense to open a single family office, dedicated to one family and the management of its wealth and investments. It’s usually families that are worth a $100 million or more that can afford a single family office. Where you start off with your ‘Mom &amp; Pops’ store growing to bigger business, you can still have an accountant managing finances or a private bank managing income. When it gets to $100 million and above, in terms of net worth, a dedicated office has a better overview of what the asset holding looks like, what the available wealth in terms of finances looks like and what investments are being made. Family offices tend to hire investment managers as investments at this level tend to be larger.&#8221;



According to this year’s Africa Wealth Report, Nairobi is one of Africa’s wealthiest cities, anchoring the region with $48 billion in total private wealth with an estimated 5,400 HNWIs. Those over the $100 million net worth bracket, however, only number 12 with a healthy crop of multi-millionaires (net worth of over $10 million) at 260 individuals. Mombasa, Kenya’s coastal second city, plays host to 800 HNWIs with a combined wealth of $7 billion. Dar-es-Salaam, the Tanzanian capital and home to Africa’s preeminent billionaire, Mo Dewji, has the region’s second-largest HNWI community with 1,300 individuals holding a total of $24 billion in private wealth. The Ugandan capital, Kampala, which has seen marked growth in total wealth over the last decade is home to 900 HNWIs worth a cumulative $16 billion.



Many of these developments are being led by family wealth either through burgeoning businesses or the expansion of pre-existing wealth. Mutendi contends that this may be due to new perspectives on wealth building.



“We have a melting pot of different family businesses and different drivers to wealth [that is] being built. The movement of the world as well as the different generations and how [they] perceive wealth, manage wealth and [their] history within the wealth pocket [is a contributor]. The nouveau riche is usually centered on one demographic but it is one that is coming into wealth after many years of being disadvantaged with financial status. With funds moving out of the continent, you have different push and pull factors.”



These factors are the back-end of much of the wealth growth that we’re observing in the region.



According to the 2022 Africa Wealth Report, investment migration is fast becoming a popular option for the continent’s affluent families. In fact, it’s a proven wealth management and legacy planning tool with 19 of the G20 countries already implementing policies that encourage inward investment in exchange for citizenship or residence rights. Henley &amp; Partners, a London-based investment migration consultancy who authored the report, noted that they saw an 18% rise in inquiries about these programs from African clients in 2021.



Jon de Jager, Managing Director of C|T Group UK, an advisory firm working with African HNWIs, explains that the movement of capital goes beyond wealth migration and has been a prominent trend.



“There has been a trend of East Africa capital being consolidated outside of the continent although, equally, there has been significantly more wealth generated within the region. Jurisdictions outside Africa have historically been a more attractive base from which 



HNWIs can invest internationally across developed economy capital markets. Putting it simply, moving capital outside of Africa can often mean direct access to cheaper debt financing and a greater array of personal and financial services to invest back into the region or continent,” he says.



However, access to these foreign financial markets isn’t always guaranteed for African investors. Enhanced due diligence checks, Know-Your-Customer (KYC) standards among other regulations often bar HNWIs from the continent from transitioning to some of these offshore locations. Whilst this has happened in the past, now it is more difficult to achieve due to regulatory requirements.



“There is often a fundamental lack of understanding of the East African region, and of Africa as a whole. HNWIs originating from the continent of Africa are often classified in the same bucket and lazy assumptions can be made as to their source of wealth or political connections, for example. We have worked very hard the last few years in establishing a credible and detailed fact pattern for individuals looking to move their capital into different markets. It is often assumed that documents are lacking for the region to meet enhanced KYC requirements, but that is not the case. What many African HNWIs need is an opportunity to explain, transparently, the facts behind their background and business history,” notes de Jager.



Scrutiny aside, HNWI capital from the region is still finding its way to more stable settings, offshore.



“Dubai in particular has recently become a popular destination on a global basis, not just from Africa. This has partly been for protection; while Kenya has no doubt become a major economic hub, and I believe will gain further momentum as such, there has been some political instability that can trigger capital flight.



Another market that we see movement to is Singapore. It is perceived by many as a stable and fast-growing economy in Asia and we are seeing this trend not just from businesses in East Africa. Singapore does offer tax advantages to offshore non-resident companies and as a result is becoming the gateway to Asia’s banking and investment markets,” notes de Jager.



However, capital flight is not the only trend we’re seeing within this segment. A movement towards reinvestment in the region, and continent, may be due to a rise in locally-based wealth management services and offerings. While growth of this market has been slow, it does signal hope for HWNIs looking to consolidate their wealth within African economies.



“There is still domination from foreign entities or agents and representatives of larger institutions that have come to the continent that are encouraging family businesses or offices to invest offshore. At the same time, our wealth advisory industry is growing at a snail’s pace. Our institutions are opening up more to setting up family office offerings and private wealth offerings over and above private banking.



It’s the right start, over the past five years there has been a move towards more customised offerings and collaborations with institutions that can offer their clientele prestige banking that goes over and above what is available on the continent,” explains Tsitsi Mutendi who has been working in various African wealth markets.



Jon de Jager, agrees, noting that while offshore markets offer a buffer from prevailing instabilities in African economies, HNWIs from the region are seeking to return their capital to their home jurisdictions as long as conditions permit.



“There is an appetite as well as a continual desire to reinvest in Kenya, East Africa and generally across the continent. Especially now, due to the global demand of natural resources, we have seen a significant drive to reinvest in Africa. At the same time, it is noteworthy that six African start-ups were listed among the World Economic Forum’s Technology Pioneers of 2022. Just as we have seen with M-Pesa, these start-ups are solution-driven and are leading the way in solving issues such cyber security, climate change and food security. In this context, I am positive that this will attract investment in Africa.”



What is important for the region’s wealthy demographic is choice. Given the myriad push and pull factors at play on the continent from economic to political instability, HNWIs often seek options that safeguard their hardwon multigenerational wealth or new avenues that enable them to build newly acquired money.



This is true for all investors, African or otherwise, so flight to economic safe havens is a natural strategy for this segment.



“It is natural for a successful entrepreneur to expand their horizons on an international stage by adding other geographies to their investments, in or outside of Africa, just as it is for a HNWI from Europe, for example, to invest in Africa. Establishing a presence outside of the continent for this purpose is necessary and efficient. Restrictive policy interventions are unlikely to facilitate growth within the region while persistent allegations of corruption or kleptocratic behaviours will always put off investors. Social factors, like high rates of crime, also come into play; issues like this simply add to reasons to move elsewhere in search of returns. Innovation is certainly attractive in terms of investing in Africa, but these must be supported by good governance and strong rule of law in establishing a stable environment in which to operate,” insists de Jager.



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“ THE NOUVEAU RICHE IS USUALLY CENTERED ON ONE DEMOGRAPHIC BUT IT IS ONE THAT IS COMING INTO WEALTH AFTER MANY YEARS OF BEING DISADVANTAGED WITH FINANCIAL STATUS. WITH FUNDS MOVING OUT OF THE CONTINENT, YOU HAVE DIFFERENT PUSH AND PULL FACTORS. ” &#8211; TSITSI MUTENDI
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Already, estimates indicate that wealth on the African continent is set to increase by 38% in the coming decade and this may be due to factors already at work within the continent’s markets. A key point, to capture this growth for the long-term, is ensuring that younger generations are equipped to take over the management of wealth sooner rather than later. According to Mutendi, at the family office or business level, this means having strong family governance structures that are flexible enough to incorporate the incoming generation, and their ideas, as they build.



“Africa’s got so much potential, there is still a vast amount of wealth that is coming from the continent and is going outside of the continent. So, there is so much possibility for families building wealth. They just have to continue cultivating innovation, especially the next generation…they are the ones that will build on the wealth that is currently being created,” she says. This is particularly important for East African families, says Mwaniki who has picked up on new patterns through his observation of the regional financial markets, noting that the younger generations are the ones leading the charge in new investment trends. “These are fairly young, wealthy people. Some of [their wealth] has been here but has been held by their parents. Once they inherit land they dispose of it because they don’t see themselves managing a farm, for example. So they invest in NFTs (Non-Fungible Tokens), cryptocurrencies or bonds. They are looking for options that will generate regular and high returns. Land you can hold but if you don’t have another source of income, it’s an idle asset. They are turning more and more to incomebearing instruments,” he says. When all is said and done, wealth creation remains a positive development across the continent. Kenya, the regional leader in continental rankings, is one of the ‘Big 5’ markets that account for more than half of total wealth in Africa.



The steady growth of HNWIs here will undoubtedly signal expansion in neighboring jurisdictions, encouraging more robust regulations and stable economic environments for their capital; wealth migration, notwithstanding, remains a mitigating factor.

Counting the Somaliland shilling

What East Africa’s Tide Of WEALTH Looks Like

The world of wealth is ever-changing, yet everlasting. High-net-worth individuals are constantly having to keep up with their wealth and the factors that impact it, like the pandemic, rising inflation and the economy’s boom and bust cycles. Safeguarding their money through volatile markets is of utmost importance. For the first time in 11 years, FORBES AFRICA is honoring the keepers of these vaults, who have persevered in the toughest of times. We speak to 10 of south Africa’s experts who specialize in wealth advisory and management services. A common theme: wealth preservation, not only in South Africa but across the continent, which is key to the growth of any economy, even as times and trends change. 







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Art Director: Lucy Nkosi WORDS AND CURATION: Chanel Retief &amp; Lillian Roberts Photography: Katlego Mokubyane; Assistant: Sandile Mkhize Studio: NewKatz.Studio by Katlego Mokubyane, Johannesburg Styling: Katlego Magano of Oak Ave Hair &amp; Makeup: Thapelo Letsebe Videography: Daniel Kopolande Video Editor: Chanel Retief 



<a href="https://shop.forbesafrica.com/product/single-digital-issue-october-november-2022/">Get your copy of your October/November issue now available.</a>

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The Wealth & Money Cover Stars: Meet The Professionals Behind Wealth Preservation In South Africa

Patrick Odier of Swiss wealth management firm Lombard Odier on why Africa offers immeasurable possibilities for investors, particularly those not risk-averse.



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Climate change events such as floods, drought and cyclones
have had a cataclysmic effect on the lives of Africans and their economies,
with many having to rebuild with little to no resources, placing more strain on
economies that are already over-burdened. 



But are there ways to forecast these events so people are
better able to weather the storm? Wealth management firm Lombard Odier thinks
it has what it takes to minimize risk on the continent, and they have the years
of experience to back it up. 



“We are a 223-year-old company. In the financial industry,
it means we have probably learned how to weather turbulences and financial
market crises – we’ve survived 40 already,” Patrick Odier, chair of the board
of directors at Lombard Odier, says. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We have made South Africa central to our strategy. I think South Africa has a long history with entrepreneurship. This idea of organizing wealth, planning and optimizing the responsibilities between the members of the families – all that belongs to it.”</blockquote>



With that said, the bank still holds firm to its roots of
running a lean organization where the idea is not to grow in quantity, but
rather in quality.



“We cannot be everywhere. We don’t want to be, we’re not a
giant. We are private. It makes it a bit different from other organizations
where the concerns are more operational… we are purely a service-oriented
company,” Odier says. 



With a client-based outlook where the bank focuses on
investment advisory, execution and fiduciary services, each client is handled
based on their unique circumstances, but what does this mean for Africa?



“We are trying to look at the African continent with a very open eye, to look at how we can add value to those potential clients or families who may want to organize their estates and perhaps, diversify their risks. I think agriculture, together with new technologies, will represent new opportunities.” 



READ MORE | <a rel="noreferrer noopener" aria-label="The Big Bank Theory: South Africa’s Banks Of The Future (opens in a new tab)" href="https://www.forbesafrica.com/wealth/2019/06/04/the-big-bank-theory-south-africas-banks-of-the-future/" target="_blank">The Big Bank Theory: South Africa’s Banks Of The Future</a>



Odier says the interests of the firm are based on enhancing
and not disrupting banking ecosystems that exist in the African environment. 



“While Lombard Odier occupies over 2,500 people, we are
still of a modest size as a financial institution. So we really want to focus
on our existing client base and not disperse ourselves too much. We are not in
the business of buying infrastructure banks and trying to take over. We are not
in the business of competing with the local banks. We believe in teaming up, or
perhaps diversifying the offering. I think when it comes to investing, we can
be very useful to this market 



“We believe the best institutions to serve the local market
are the local ones. We are here to bring something else, which is basically,
what is not offered here,” he says.



However, the continent, like any other, has challenges unique to it and thus, require nuances in resolving. It should not be discounted that, although Africa has made gains in catching up to the rest of the globe, a vast majority of its nations are still developing.&nbsp; 



READ MORE | <a rel="noreferrer noopener" aria-label="Explainer: South Africa’s Central Bank – Ownership, Mandate and Independence (opens in a new tab)" href="https://www.forbesafrica.com/economy/2019/02/03/explainer-south-africas-central-bank-ownership-mandate-and-independence/" target="_blank">Explainer: South Africa’s Central Bank – Ownership, Mandate and Independence</a>



“The world in general is changing. You see it in everything in your life. You see it in the way you consume, the way you expect your employers to treat you and the way you think of prices. Unfortunately, you’ve seen it the way water becomes scarcer in some periods, you see also how difficult it is to produce electricity correctly, in some respects, and you see it in how climate change is affecting your life. 



 “All those elements are part of mega-trends we believe as a firm we could try to interpret quicker and better than some. We are transforming the way we invest to invest more sustainably. In South Africa, we want to be a leader in bringing this approach to investing in resources. 



“Some say you have to have luxury to think this way, I say
not doing it will create much bigger risks than doing it,” Odier says.&nbsp;

Patrick

Private Wealth: Banking On Climate Change In Africa

<a href="https://www.forbesafrica.com/wp-content/uploads/2017/11/SC-WealthManagement2018.pdf">FREE DOWNLOAD: FORBES AFRICA&#8217;S WEALTH MANAGEMENT SUPPLEMENT </a>
<div id="attachment_292440" style="width: 235px" class="wp-caption alignleft"><a href="https://www.forbesafrica.com/wp-content/uploads/2017/11/SC-WealthManagement2018.pdf" target="_blank" rel="noopener"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-292440" class="wp-image-292440 size-medium" src="https://cdn.cnbcafrica.com/wp-content/uploads/2017/11/27125021/GD-SC-WM18-225x300.png" alt="" width="225" height="300" /></a>‘HERE FOR GOOD, HERE FOR AFRICA’ | Download Forbes Africa&#8217;s Wealth Management supplement</div>
Africa is home to some of the fastest growing economies in the world and the stats show how moneyed its populations are; high-net-worth individuals, according to the World Wealth Report, grew by 8.1% in Africa last year, with overall affluence increasing by 10.7% – faster than anywhere else in the world.
“We definitely see this trend continuing far beyond 2018. There is an entrepreneurial spirit sweeping the region. As we see technology permeate all areas of the economy, individuals are using this access to start new businesses and expand beyond city centers and geographies. It’s these entrepreneurs who are creating wealth for themselves and their families,” says Duggal.
The wealth needs of Africa’s diverse, growing middle class population, estimated at 300 million people, are intricate, with most countries being emerging economies and wealth being a relatively new notion for many. The African Lions report defines the continent’s middle class as “not in poverty” and having “disposable income and discretion”. The African middle class, says the report, also has a tertiary education that has been completed or is underway; they have money to fall back on in times of emergencies and access to a computer with email and internet.
“This particular growing middle class is looking for means to save for their first home, pay for their children’s education and set money aside for retirement. In many cases, they are the first ones in their families to attain surplus wealth, so often, there is a need to care for their aging parents or other relatives,” notes Duggal.
Saving early and doing so prudentially is key, however there is a need to dispel the sentiment that a considerable amount of cash is required to start investing. Many banks cater for basic savings plans that allow for a fixed amount to be put away each month. Standard Chartered, for example, offers a vehicle where money can be invested in a diversified portfolio of globally-recognised mutual funds. In South Africa, tax-free savings plans that are comprised of unit trusts and other investment vehicles intended to bolster savings are also gaining popularity, with the likes of Allan Gray and Old Mutual offering similarly structured products.
<blockquote class="td_quote td_quote_left">THERE ARE CHALLENGES WHICH NEED TO BE ADDRESSED BUT I WOULD SAY THERE ARE FAR MORE OPPORTUNITIES THAN CHALLENGES.</blockquote>
The best place for one to start creating wealth, Duggal tells us, is to become financially literate and to understand the options available as an investor. “Of course, every investor is unique and their investing is solely dependent on their individual client risk profile and personal preferences.”
On the trends in Africa, Standard Chartered sees real estate as a favored asset class for many with developers turning to mixed-use projects as a means to boost their bottom lines. There is also a marked increase in technology start-ups with the rise of mobile devises – an IDC report shows that the African smartphone market reached an estimated 95.37 million units in 2016; although feature phones still rank number one, homegrown manufacturers such as Mint Mobile in South Africa are coming to the fore with a ‘Made in Africa’ solution to meet local smartphone and tablet demand. And while asset classes invested in Africa’s natural resources and commodities are popular, a portion of their money can also be found in offshore investments.
From the bank’s perspective, diversification across both asset classes and geographies is vital to reducing overall risk, which is unique to the individual with investment power dependent on their existing risk profile as well as personal preference. But generating wealth substantial enough to be able to invest it is not without its challenges, which includes high inflation, illiquid markets, a lack of information and credible research data however, Duggal is confident the pros outweigh the cons.
“We are optimistic that many African economies will continue to grow in the long run amidst certain shocks here and there. There are challenges which need to be addressed but I would say there are far more opportunities than challenges,” he says.
<h3>MILLENNIAL MENTALITY</h3>
There is a growing consensus that the millennial generation currently has the greatest buying power – projections put this number at between 80-90 million in America alone and thus, millennials are at the core of the majority of industries today. Wealth management is no exception.
The millennial generation, in particular, has been exposed to significant global, social and economic change in relation to previous generations. Millennials are distinguished by their impatient nature and have different attitudes towards how to manage their assets. It is for this reason that Duggal believes that it is crucial to have a conversation with the bank’s younger private banking and investment clients to explain their investment profiling and look at how they can invest their money, saying that “a millennial investor has no issue with understanding the math behind a solution, yet, we lose them over a traditional paper and pencil explanation. Millennials want to understand how the advisor thinks and analyses through a screen and a dynamic tech solution. It is important to get them to see how the right kind of advisory platform can help them make an informed decision in terms of their investment.”
A key driving factor amongst millennials in their decision making is their need to change the world. According to EY, a millennial is twice as likely to invest their money in a company that is focused on social or environmental issues. This bodes well for sustainable investments, which currently represent 18% of assets under management in wealth and asset management classes.
“They need to know where their money is put, and they want to make sure that this it serves their purposes. This would require vast research and a restructuring of product offerings,” explains Duggal.
<h3>HOW DO THEY DO IT?</h3>
So what qualifies Standard Chartered to advise its clients on where to put their money?
“We have strong advisory capabilities and a specialist model, which makes us unique in the market. We also leverage on our local market knowledge. We have had a presence for over 100 years in many of the countries we operate in… We are deeply rooted in Africa and can confidently say that we are ‘Here For Good, Here For Africa’. The bank also has a global footprint. It is because of this that we are able to combine global, regional and local knowledge to best serve our customers,” says Duggal.
From within, Duggal believes in the importance of nurturing the bank’s young talent. Standard Chartered has programmes to invest in its talent across all levels of seniority – a leadership programme aimed at its senior managers and heads of business helps them grow within the business. Similar programmes are in place for junior employees with the objective of upskilling them, where they can travel on short-term assignments for up to a year to more established markets to help them to gain a better understanding of how these markets work.
As business as a whole moves into a more global space, it is more important than ever to develop programmes that aim to bring about a diverse range of skills and experience and nurture talent by encouraging mentorship at all levels – the Boyden Talent Management Trends in the Banking Industry 2017-2018 report notes that “The best talent wants to work for innovative companies that offer learning opportunities and financial institutions must win the talent war in order to succeed in their efforts to recruit and retain individuals most suited for their organisation. This flexible and focused workforce will help build an organisation that is digitally savvy and flexible enough to adapt to current and future changes. To this end, having leaders and recruiters with experience in transformational change is essential.”
With the prospects in Africa riper than ever before, we can certainly look forward to seeing Standard Chartered putting their money on the continent, along with their clients.

Tag: wealth management

FORBES AFRICA SOCIAL MEDIA

What East Africa’s Tide Of WEALTH Looks Like

The Wealth & Money Cover Stars: Meet The Professionals Behind Wealth Preservation In South Africa

Private Wealth: Banking On Climate Change In Africa

STANDARD CHARTERED’S GAUTAM DUGGAL ON WHY AFRICA IS A GOOD BET FOR RETURNS