Number of high-net-worth individuals in South Africa to balloon over the next decade

24 May 2018 Consultancy.co.za

Having navigated a major dip between 2014 and 2015, the volume of private wealth in South Africa is back on a steady growth trajectory, which is expected to continue over the next decade. A new report places the number of high net worth individuals (HNWIs) in the country at over 43,500 at the end of last year.

The year between 2014 and 2015 was a challenging one for South Africa in most respects of its economic well-being. Global oil and commodity prices took a nosedive, which spelled trouble for South Africa, given its dependence on the mining and natural resources sector. Alongside impacting the GDP, the overall economic slowdown appears to have affected the country’s wealthiest segment as well.

New World Wealth is a Johannesburg-based market research and consulting firm that offers a range of analytical services. The firm bases its insights on a number of studies and surveys spanning the domains of regional wealth and migration, management consulting, safety, and residential property.

South Africa HNWI performance 2007-2027

In terms of its analysis on regional wealth patterns, the firm conducts studies in 125 cities worldwide, covering 90 countries. By its own declaration, the firm uses private wealth as a determinant of economic performance – primarily due to the distortions and generalisations that are inherent in using GDP as the key indicator.

According to New World Wealth’s analysis of South Africa’s private wealth levels between 2007 and 2017, the number of HNWIs – individuals with private wealth of over $1 million – has remained steadily above the 40,000 mark, dipping into the 30,000s on only two occasions, first in 2008 post the Global Financial Crisis and then in 2015 following the dip in oil prices. 

Since 2015, things have taken an upward turn again, with the number of HNWIs going up to just over 40,000 in 2016, and surpassing 43,500 in 2017. Based on the firm’s analysis, this figure will continue to rise over the next decade through to 2027, expected to reach a total of 56,000 HNWIs.

South Africa HNWIs distribution by industry 2017

The report attributes this growth to a number of features that make South Africa an attractive place for the wealthier segments to reside. These include advanced facilities in the healthcare and education domains, widespread proficiency in English, a well-developed luxury brands market, the prevalence of private security companies, and a range of others.

Zooming in, Johannesburg is home to the highest number of HNWIs (18,400) by a fair distance, cumulatively accounting for $276 billion. The city’s figures are driven up by the inclusion within its statistics of the economically prosperous Sandton district. Cape Town follows with 8,300 HNWI residents, while all other surveyed districts fall below the 5,000 mark. 

South Africa’ business advisory market, which is worth over R70 billion, is the biggest sector in terms of HNWIs. Financial & Professional services account for nearly 27% of the total HNWIs in the country, followed by Real Estate & Construction, which hosts nearly 20% of the wealthy. All other sectors account for less than 10% each of the HNWIs, the biggest of which include Tech & Telecom – which is growing in relevance by the day – basic materials, and retail. 

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Poor economic conditions might dent South Africa's investment profile

12 March 2019 Consultancy.co.za

Despite the words of promise delivered by Finance Minister Tito Mboweni in this year’s budget speech, South Africa’s profile as a destination for investment is likely to deteriorate on the back of public debt and deficits, according to PwC Strategy& Economists Lullu Krugel and Christie Viljoen. 

Much has been riding on South Africa’s budget speech this year. The country is emerging from a period of sustained economic stagnation, and the new government has vowed to make South Africa a hub for foreign investment through the development of a more transparent regulatory and business environment.

The country also suffers from a high rate of tax defaults, and the decision to hike tax rates in last year’s budgets did little to restore the levels of financing in public coffers. As a result, the government has decided to heavily tax wealthy South African expats earning in excess of R1 million, alongside other tax reforms.

The focus, however, was a restructuring of public agencies such as Eskom and regulatory bodies to make them more open and efficient. According to PwC Strategy& analysts, these measures might create an environment of optimism in the country, but the conditions are likely to prompt Moody’s Investor Service to demote South Africa to non-investment grade this year.Lullu Krugel, PwC South AfricaCommenting on Mboweni’s speech, Economist Lullu Krugel said, “His address was forthright about the challenges facing the country, and while there were many bitter pills to swallow in the detail, the minister provided some good news – for rating agencies – on key subjects like Eskom and the public sector wage bill.”

On the other hand, she added that “These sweet words, depending on whose ears it falls, can, however, not detract from the wide budget deficit and huge debt that the public sector is struggling with.” National Treasury figures place South Africa’s projected growth for this year at a dismal 1.5%.

Given the conditions, Bloomberg has predicted that Moody is likely to downgrade South Africa’s status, which, according to Mboweni, will only harm the country’s economic prospects. Krugel explained the precise nature of the struggle that South Africa would be faced with if downgraded.

“If rating agency Moody’s Investors Service were to also downgrade the debt to sub-investment level, South Africa would be removed from the Citi World Government Bond Index. This would prompt asset managers and pension funds to sell billions of rands worth of domestic bonds. This would sharply increase the cost of debt and pressure the exchange rate,” she said.