How the rich can help drive change by investing

Top fund managers in Africa who are leading the way on impact investing could do a better job, write Stephanie Giamporcaro and Xolisa Dhlamini

Young Africans are expressing their ambition to be wealthy and aspiring to create intergenerational wealth.

From land expropriation debates on Twitter to the enthusiasm for the film Black Panther, set in a fictitious African country with great wealth, the topic of African wealth is taking centre stage. There is a growing awareness among Africans that wealth has the power to drive change and to eradicate inequality and poverty on the continent.

The definition of wealth is as debatable as that of inequality; however, in monetary terms, wealthy or high net-worth individuals, (HNWIs) are people with a minimum of $1m in net investable assets.

The group includes millionaires ($1m-$10m) multimillionaires ($10m-$30m) and ultra HNWIs ($30m or more ) in net investable assets.

At the end of 2016, there were more than 13-million HNWIs globally, owning investable assets in the region of $70-trillion. Africans accounted for a little more than 1.1% of HNWI individuals globally and owned 1.2% of the wealth assets.

According to the AfrAsia Bank Africa Wealth Report of 2017, the number of HNWIs in Africa is expected to rise by 36% by 2026. It is also estimated that at the end of 2016, $132bn in African individuals’ assets were managed by wealth management companies in SA, the UK and Switzerland.

This wealth is the financial muscle that can potentially accelerate sustainable change on the continent.

While some may advocate for African governments to increase tax collection from HWNIs, getting more of them to commit their wealth to return-generating sustainable finance alternatives could complement governments’ roles.

The goal of sustainable finance is to allocate more capital towards return-generating investable opportunities in the real economy in a manner that achieves sustainable development goals such as fighting social inequality or climate change, and promoting gender equality and biodiversity.

This is not only a European or US trend. According to the latest African Investing for Impact Barometer, as of the end of July 2017, more than $428.29bn of investment assets in the sub-Saharan regions of east, west and southern Africa were allocated to investment strategies that seek to generate social or environmental impact while generating investment returns.

However, the investing-for-impact industry is still in its infancy on the continent.

The barometer, published annually by the Bertha Centre for Social Innovation and Entrepreneurship at the UCT Graduate School of Business, reveals that while investment opportunities in sustainability and impact themes, such as renewable energy, agriculture, inclusive financial services, socioeconomic transformation and infrastructure exist, they are largely untapped.

European surveys have pinpointed HNWIs as important agents of change and the acceleration of sustainable finance, notably around sustainable and impact investing.

A similar survey in SA on a database of more than 800 HNWIs shows that despite some present investment and future appetite from them, the lack of marketing and information provided by fund managers and investment advisers appears to be hampering further uptake.

Undoubtedly, top fund managers in Africa who are leading the way on sustainable and impact investing could do a better job connecting their private wealth clients to the positive financial and sustainable impact they could achieve for the continent through their wealth – without sacrificing returns.

Much also still needs to be done to make sure the wealthy African elite — young and old — are aware of the options available and that they understand that they themselves hold a good deal of power to bring about positive change in their respective countries and on the continent as a whole.

• Giamporcaro is an associate professor at the UCT Graduate School of Business and Dhlamini is a Bertha PhD scholar and independent consultant.

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