Private banking: African growth story spawns new class of oligarchs

By:
Kanika Saigal
Published on:

Africa’s economic growth over the past decade has propelled the number of high-net-worth individuals on the continent to new highs, creating a new and powerful class of super-wealthy Africans who are taking on oligarch status.

The African renaissance, it appears, is in full swing: a third of African countries are growing at more than 6% annually, and seven out of the 10 fastest-growing economies in the world are in Africa.

Such economic growth has, in turn, generated huge wealth for the few at the top who can call on government support, or among those who have prospered due to the absence of a fully functioning government.

“High-net-worth individuals (HNWI) in Africa, except in some rare cases, are oligarchs,” says Sebastian Spio-Garbrah, founder of DaMina Advisors LLP, a political risk consultancy headquartered in New York. “Indeed, the super-wealthy have gained their wealth as a result of government help, support or dysfunction.

He adds: “The super-rich in Africa are not the same kind as what you see elsewhere. They’re not the real workers or grafters. The real workers aren’t seeing much of this growth as yet. On the ground there is discontent.”

In Nigeria, for example, the country is set to overtake South Africa as the largest economy in Africa this year, but more than 60% of the population still live in poverty.

Burgeoning economic growth – fuelled by global demand for natural resources and the growth of the middle classes – has helped push the number of ultra HNWIs ($30 million or more in net assets) in Africa to 1,863 at the end of 2013, an increase of 130% since 2002, according to a joint report this week from Knight Frank and WealthInsight.

In comparison, the number of its super-rich has grown globally by 59% since 2003.

By 2023 that number is expected to increase by 53%, taking the number of UHNWIs in Africa to 2,858, the report says. Breaking that down, Nairobi is expected to record the highest increase in the number of UHNWIs with 78%, followed by Marrakesh (60%), Johannesburg (41%) and Cape Town (37%).

However, Spio-Garbrah says: “This is a period of transition [and] soon these oligarchs will see more international and domestic competition, African markets will continue to open up and the benefits will trickle down to the consumer.

“The rise of the Africa oligarch, or African HNWI, probably won’t last. And there is a chance that HNWI in Africa will lose out as a result of this reshuffling.”

Banking infrastructure – or lack of – will also remain a challenge to future wealth creation, according to Ouliana Vlasova, an analyst at WealthInsight.

“It takes time for GDP growth to create wealth growth,” she says. “Wealth growth is heavily dependent on the strength of the local banking system. For instance, in countries such as Cote d’Ivoire and Ethiopia, strong GDP growth has not yet translated into UHNWI numbers due to a weak banking system.”

Growth itself could be expected to stall, too, as a result of the global rout enveloping most emerging-market economies, but Samir Gadio, emerging markets strategist at Standard Bank, says African markets have shown resilience to the sell-off.

“On the whole, African countries have been sheltered from global economic issues, such as Fed tapering, because foreign-exchange reserves in the continent in general are still low,” says Gadio.

“But countries with heavy foreign positioning, including the likes of South Africa, Ghana and Nigeria, could feel the effects of a global downturn.”

He adds: “While in South Africa there have been adjustments for instance, in Nigeria we have actually seen international investors exit the country. On the other hand, HNWI in Africa will have diversified investments abroad as well as domestically, so are often well covered.”