- Standard Bank released its inaugural African wealth report, exploring "The Art of Creating Wealth".
- The research shows that most South Africans who become dollar millionaires do so by climbing the corporate ladder or having a successful professional career.
- In Kenya, Ghana, Nigeria and, to a lesser extent, Mauritius, the wealthy make their money through entrepreneurship and tangible assets.
If you want to become a dollar millionaire in South Africa, you most probably have to work hard on climbing that corporate ladder, whereas in countries like Nigeria, Ghana and Kenya, the entrepreneurial sweat usually pays off.
A new wealth report commissioned by Standard Bank - which took research firm Intellidex almost two years to gather insights - shows that South Africa produces most of its high net-worth individuals, over 70%, through executive careers. As a result, more than half (58%) of the country's dollar millionaires are retirees or over the age of 50.
But contrast, in Ghana, where 78% of the country's high net-worth individuals made their money from entrepreneurship, the wealthy are younger with a handful of dollar millionaires in the youthful years of under 35. The same goes for Nigeria and Kenya; all countries where people predominantly build their wealth through their own businesses and hold more tangible assets like multiple properties and farmland.
"For me there are two themes that came out. It's that we live in a continent that's rich in entrepreneurship; and it confirmed that one cannot assume all high net-worth clients are the same in each country," said Christopher Browne, global head of wealth and investment at Standard Bank.
So, why are is it that in South Africa only 29.2% of dollar millionaires surveyed by Standard Bank and Intellidex were able to make their money through entrepreneurship?
"I think we should ask: why is it that so many South Africans are making wealth through professional careers, rather than entrepreneurship? The answer is; there's a much bigger formal sector in South Africa than on those other markets," said Intellidex chairman, Stuart Theobald.
However, the downside of this route to building wealth is that fewer people generated beyond the first $1 million through their professional and executive careers, the research showed.
Why other African countries produce more ultra-wealthy entrepreneurs
"Why are entrepreneurs much more common in Nigeria and Ghana? Because there isn't really an alternative," said Theobald.
With no large multinationals that most people can work in, young people in these countries have got to "do it themselves", said Theobald.
Having only the option to do-it-yourself is likely to have sharpened business acumen among these other African entrepreneurs. But research which surveyed 265 high net-worth individuals and conducted 75 in-depth interviews with people who have at least $1 million in net asset value also showed that there are fundamental differences in how South Africans think about wealth creation, their work ethic and life balance.
In Nigeria, 64% of ultra-wealth executives are also entrepreneurs. In Ghana, it’s 50%, 43% in Kenya, 19% Mauritius. As for South Africa, only 10% of executives are also entrepreneurs. As for time spent working, whether in their business or their executive jobs, in Kenya and Nigeria, more dollar millionaires worked more than 60 hours a week.
While they worked longer, they also took more time to engage in restorative activities like prayer, meditation and yoga. South Africa had the highest proportion of ultra-wealthy who devote no time at all to restorative activities, but the country's ultra-wealthy do spend more time with family.
South Africans love equities, other countries prefer tangible assets
South Africa benefits from having the largest stock exchange in the continent, a world-class savings and investments industry and a larger pool of employed people who are locked into compulsory retirement savings. It therefore came as no surprise that most of the country's dollar millionaires held their wealth through equities.
In the other countries, tangible assets and investing in their own businesses were clear winners and they explored more alternative investment vehicles, such as hedge funds, venture capital and private equity. In all countries except South Africa, most respondents own second homes, farmland and foreign properties. Not only are South Africans not owning these tangible assets, they also don't have much interest in them.
"South African for instance, have no interest in owning farmland and have less interest than the rest of the continent in owning foreign property. That might well indicate concerns over property rights. It might reflect concerns about security of ownership in those areas," said Theobald.
However, he also noted that there is cultural bias towards a diversified investment portfolio in South Africa and not wanting to put all the wealth in property. Interestingly though, the research showed that Kenya where more ultra-wealthy owned farmland, there are more high net-worth individuals with $20 million to over $100 million of wealth.