NextGen Wealth: an African perspective
Sanmari Crous, Business Development Manager for Standard Bank’s International Fiduciary Services.
A version of this article was first published in ThoughtLeaders4 Private Client Magazine
“You cannot leave Africa, Africa said. It is always with you, there inside your head. Our rivers run in currents in the swirl of your thumbprints; our drumbeats counting out your pulse; our coastline the silhouette of your soul.” -Bridget Dore
Anyone who has been to Africa would agree that there is something about the continent that makes it different – it’s in the noise of the cities, the quiet of the natural expanse, and the rhythm of everyday life. This is true, not only of the land, but also of its private wealth. Although much of the global trends can be found in Africa too, there are nuances and context that make it different. In this article, we explore NextGen Wealth in Africa.
Africa in context: a continent of opportunity
Across the globe, there are 2,668 billionaires worth a total of $12.7 trillion, according to Forbes. Africa is about three times the size of Europe, with almost double its population. Yet, according to Forbes, Europe has 30 times more billionaires than Africa: Africa has 18 billionaires in comparison to Europe’s 592, holding a total wealth of $84.9 billion in comparison to Europe’s billionaires’ $2.8 trillion.
This is a huge difference, and the immediate question arising is whether this imbalance is better when considering the number of ultra-high net worth individuals (UHNWI). However, the opposite is true. Knight Frank estimates that there are over 60 times more UHNWI in Europe than Africa: there are 2,240 individuals in Africa worth $30m or more, in comparison to Europe’s 154,008.
The total private wealth held in Africa is expected to rise by 38% over the next 10 years, according to Henley & Partners. However, Knight Frank predicts that the global growth in UHNWI’s by 2026 will be 28%, and that Africa’s growth will be only 11%.
There are many reasons for this unequal distribution of wealth across the globe, flight of capital being one of them. However, the opportunity in Africa is great and, in relation to family business, the NextGen is involved and interested in continuing, preserving, and growing their family’s legacy. With the NextGen often being more committed to their home countries, they have the potential to make a true difference in the continent. Wealth advisors must be ready to help them on this journey.
The African private wealth landscape: diverse and unique
Africa is probably one of the most diverse continents. According to Henley & Partners, 50% of the continent’s wealth is held in the ‘big five’ - South Africa, Egypt, Nigeria, Morocco, and Kenya, with South Africa holding twice as much of the wealth as the runner up, Egypt. In addition, the economies, politics, and cultures across Africa are diverse. For example, in certain African cultures, the contemplation of death or any discussion about their own or their loved ones’ death is discouraged, making succession planning discussions challenging. In many countries, Sharia law is integral to estate and succession planning, bringing a unique set of challenges to the discussion. Often, NextGen professionals or entrepreneurs are carrying the cost of supporting their parents financially, turning the traditional wealth planning discussion on its head.
NextGen Wealth in Africa: a practical view
Our colleagues in our South African and Nigerian offices agree that a large proportion of UHNW wealth in Africa remains first generational. Jacques Els, Head of Family Office in South Africa, said that one of the foremost challenges with “first generational” wealth is the fact that these families have no experience in inter-generational wealth transfer. Emi Agaba-Oloja, Executive Director of Stanbic IBTC Trustees in Nigeria, echoed this sentiment, saying that it is still the first generation setting up structures, although she has seen an increased interest in setting up family trusts, and Lisa Guscott, a Wealth Manager in South Africa, found that we are often the ones to prompt the first generation to bring the next generation into the room.
As a result, there is a big focus on education. “We find ourselves being financial coaches,” says Lisa, adding that when she talks to a family, she starts with the foundations in understanding the family, their culture and their needs first. Although this is important all over the world, it seems to be even more so in Africa. “Even if it takes six months, that’s what needs to be done before you can start the wealth planning.”
The NextGen shouldn’t be underestimated, though – they are well-informed and not limited to some of the traditional views of the older generations. For instance, Ally Jaulim, Head of Business Development for our international fiduciary services, noted that, although talking about death is often a taboo for the first generation in some cultures, it is usually not the case with the next generations.
We have found the NextGen in Africa to require data-driven decisions, prefer a one-stop shop, insist on consolidated platforms available 24/7 with all their financial information, and often have significant influence over the opinions of their elders.
In some instances, members of the NextGen do not have a full appreciation of the extent of the family’s wealth. PwC’s Africa NextGen Survey 2022 found that, although 48% of NextGens said they’re more involved in the family business now than before 2020, only 28% were given significant internal operations to lead, 43% say there is a resistance in their company to embracing leadership changes, and 61% say that the current generation’s hesitance to retire is a problem.
Jacques observed that where the patriarch/matriarch/principal took a conscious decision that the NextGen should not be privy to full details of the family wealth, it is likely to bring about significant challenges at the stage where inter-generational wealth transfer takes place. In contrast, where the NextGen participates in the management of the family wealth, either in a structured way as members of fincom/investcom, or in a less structured way (attending or observing investment discussions, for example), there is likely to be a greater degree of interest and sense of ownership and, as a result, a smoother transition of generational wealth.
The next generation is focused on investing based on their personal values, including ESG-based investments, in Lisa’s experience. PwC found that 69% of NextGens in Africa believe there’s an opportunity for family businesses to lead the way in sustainable business practices. Jacques agrees that the younger generation’s increased focus on ESG is a global trend also applicable in Africa. In his experience, the younger generation often has different views and priorities as to what is important to them, where they’d like to make a difference and which causes they would like to see the family support in the future – both from an investment and philanthropic perspective.
The next generation will be instrumental in the growth of Africa’s wealth, and look set to do it in a sustainable way, not only for the environment, but also for the people on the continent. 82% of NextGens say that they expect to be involved in increasing their businesses’ focus on investments for sustainability, according to PwC, and 78% agree that, in Africa, there is a greater tendency to contribute to their local communities.
Africa has great potential and the NextGen holds much promise. It is important that we partner with UHNW families across all generations, and foster relationships with members from the NextGen (in the widest sense) from an early stage.