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By Albert Momdjian, Founder & CEO of SOKOTRA Capital Ltd.

Africa, Should We Look at it as One Market?

Africa is by far, one of the most attractive and, simultaneously, difficult markets to penetrate and develop from a wealth management point of view, specifically with regards to Ultra High Net Worth individuals.
Africa cannot be looked at as a single market, a common mistake made by a large number of international banks and financial institutions looking to benefit from the wealth creation that is taking place across the continent.
The origin of the accumulated private wealth, the distribution of this wealth and the economic and political climates, vary from country to country. Additionally the ethnic and cultural diversity present within individual countries mean that having a strong understanding of the specificities of each market is crucial to doing business on the continent.
The African continent is composed of 54 countries with a total population of circa 1.3 billion people at the end of 2014. Total African GDP reached a combined USD 2.3 trillion as at the end of 2013. GDP per capita varies from USD 400 per head to a whopping USD 25,900 per head.

A Large Addressable Market

Statistically, the African market promises a large untapped region for Wealth Management (WM) services. Fast growing economies and increasing volumes of High Net Worth Individuals (HNWI) have attracted the likes of Barclays Africa and UBS AG to service the West African region, most notably the Nigerian market which boasts over 16,000 HNWI. Ongoing infrastructure development projects and the increased exploitation of natural resources, especially in the mining and oil & gas sectors, have led to a recent surge in African millionaires which in turn has attracted wealth managers to seek net new money from Africa. Economic growth across the continent has also led to the subsequent development of certain non-resource sectors such as the transportation, telecommunications, manufacturing and financial sectors, which in turn has contributed to the emergence of a large number of HNWI whose wealth is tied to these sectors.

One Size Fits All?

The challenge for WM firms is the approach which needs to be taken when it comes to establishing their presence in African regions. The size and complexity of the African market makes it difficult to effectively cover the continent as a whole. WM firms should focus on individual countries and having a well-established local partner is crucial to help navigate the complexities of these markets and gain local knowledge. Furthermore, the high levels of investment required to set-up in certain African countries could also prove to be a decisive factor for WM firms.
Corporate Governance and KYC requirements are also extremely challenging issues to address in Africa. Identifying and properly articulating and documenting the sources of wealth for several families and a large number of entrepreneurs remains very challenging.

The Future of Wealth Management in Africa

It goes without saying that many African countries are not yet in a position to be attractive to WM firms and will not be in the near-future due to their still emerging economies. Some countries may appear at first, from an economic point of view, to have good potential for WM services. However, other factors such as a polarized distribution of wealth with a relatively small middle class or non-transparent groups, mean that time is still needed before they become attractive for wealth managers. Regardless of the situation, firms also need to assess the appetite for WM services and devise an entry strategy before establishing a local presence in any given African country. More importantly, the needs of a large number of entrepreneurs and business individuals would be better serviced, at least initially, by local and regional African groups rather than bulge bracket and international investment banks or wealth managers.
When it comes to establishing a local presence in African countries, WM firms should be patient and not expect an easy road. Since the 2008 economic crisis there has been decreased confidence in the WM industry worldwide and these effects are still being felt today, with African HNWI not excluded from this sentiment. Investors are becoming increasingly sophisticated and demanding more transparency. Added to this, certain additional risk factors attributed to many African countries including high levels of bureaucracy, corruption and political instability, mean that WM firms seeking to operate in these markets should allow for a substantial adjustment period before expecting to achieve significant results. My Opinion on Golden Tiger Casino