This is the second part of a feature about what wealth management firms are doing in Africa and the potential they see for the continent.

This is the second part of a feature article looking at the wealth management firms operating in Africa and their views about the potential of the continent. To see the first part of the feature, click here.

Countries to watch
“Nigeria has immense potential and is growing rapidly. With its huge population, natural resources, and embryonic agriculture, infrastructure and power sectors, the wealth pool is growing fast and that is being reflected in our client base. It is however not yet an easy place to do business,” explained Standard Bank's Deon de Klerk, adding that Kenya, Mozambique and especially Angola, the fastest growing economy in Africa, “are alive with opportunity”. This is partially due to the discovery of natural resources, most particularly oil, in the latter two.

Aston Wealth Management's James Bennett suggests keeping an eye on Kenya, Mozambique, Nigeria and Sierra Leone.

“Angola has a lot of potential, if it can sort out its administration issues. Zimbabwe too. We’re seeing a lot of opportunities for developments where people are interested in getting involved, especially in Harare. But you can not beat Nigeria, that is where it’s happening for Africa,” Bennett said.

“The economy is just developing at such a rate in some of these countries that it’s such a booming time for wealth management. If you look at penetration rates for financial services products, it is so incredibly low in these countries - the majority of Nigerians don’t even have a bank account! And that’s even though they’re leaps and bounds ahead of us here in Europe when it comes to banking technology, using their mobile phones for electronic transfers, banking etc. Africa really is the last great financial services frontier,” Bennett continued.

Standard Bank has been investing heavily in Nigeria too, having taken up a majority stake in one of the leading corporate and investment banks in the country.

“We have shown an enormous commitment to Nigeria. With regard to our private clients business in particular, we have been building up both the domestic and international teams and capabilities in Nigeria for a couple of years. We have also invested in our private client academy to train all relationship managers at our South African Leadership Centre,” says de Klerk of Standard Bank’s training academy for Africa-based relationship managers, which enables them to specialise in local client needs.

Personal security & corruption
That said, there are challenges to running a wealth management business in Africa, whether you are a large-scale international banking group or an independent boutique.

“Part of the reason that there are so many opportunities in Africa is because of the physical and security risk involved in doing business there. There are challenges there. We operate in areas in West Africa where, at times, you might need private security and you’re constantly on guard. James for instance, has been shot at, on a number of occasions. So yes, there are great opportunities, but at the same time we caution it due to the fact that there are massive challenges,” said Aston Wealth Management's Jay Goss.

Personal security issues again provides challenges when attempting to recruit new employees for the firm, says Goss, who in his experience, has seen few candidates with a relevant background for turning up in “this kind of market, where they might only know one person and have to create new business”.

Similarly, Standard Bank lists compliance and infrastructure concerns as issues to watch when venturing in to the African market.

“The main challenge of operating in Africa, or any other emerging market, is compliance. Corruption, which is endemic in many countries, continues to pose major problems for multinationals and so compliance is critical in ensuring the ongoing creditability of a business, including our own. To have an appropriately-resourced risk framework to operate in Africa may be expensive, but is absolutely essential,” said de Klerk.

“Then there are the infrastructure issues which vary from country to country, but include transport and technology problems. The costs of security can be a factor, as too can the expectation and requirement when it comes to timing. There are often various impediments that mitigate against a fast turnaround. You also need to be adaptable in the face of fast political changes,” de Klerk said.

30 years of growth ahead
Challenges aside, the potential for Africa as a whole is enormous. It has one of the fastest growing populations in the world, and by 2050, one in four of the world’s working population will be African, overtaking China. It has two-thirds of the world's cultivable land and an abundance of natural resources. In addition, the increasing stability and democratisation in the region is creating free market economies and encouraging global investment.

The number of ultra high net worth individuals - those with $30 million or more in net assets - across the world has grown by 59 per cent since 2003, but in Africa the increase has been 130 per cent. This compares to 89 per cent in Asia, 116 per cent in the Middle East and 44 per cent in Europe. By 2023 that number will further increase by 53 per cent taking the number of UHNW individuals in Africa to 2,858. Nairobi will lead the way with a 78 per cent increase, followed by Marrakesh (60 per cent), Johannesburg (41 per cent) and Cape Town (37 per cent), according to Knight Frank, the global property firm.

“I reckon we’ve got 30 years of growth,” said Aston Wealth Management's Bennett. “I don’t see anywhere else in the world with this sort of potential - but it's going to take time. It will take at least 20 years to get the roads and power production in place. Right now, almost everything is imported, they have no local production. But that will change. It will be the next success story," Bennett said.

In this respect, Standard Bank, which has a 150-year old history in Africa, also believes in potential for growth in African wealth.

“Obviously with increasing prosperity there will be a substantial growth in high net worth individuals, and their need for expert advice and the solutions we can offer through private banking services. As a bank we have been operating in Sub-Sahara Africa for many years, but are just seeing the real opportunity that is Africa. African markets are seen as the last frontier with its favourable demographics and vast untapped resources. Those who understand the risks have the opportunity for strong investment returns,” concluded de Klerk.