35% of Nigerian dollar millionaires lose status under Buhari
In the last seven years, 5,400 Nigerians living in the country fell from the ranking of high-net-worth individuals (HNWIs) as they no longer have up to $1 million in liquid assets, an analysis of African private wealth data has revealed.
This trend, which is also seen in many other African countries, was driven by both human and environmental factors, the report said. Analysts say poor economic policies were worsened by the coronavirus pandemic, and government response complicated the problem.
“The recent global economic challenges have largely affected companies that are not globally competitive, particularly companies that are not in the technological space and this has affected many,” said Temitope Omosuyi, an investment strategy analyst at Afrinvest Limited.
A comparison of the reports published in 2015 and 2022 on African wealth by New World Wealth, a wealth intelligence firm, and Henley & Partners, a firm that publishes residence and citizenship by investment, showed that overall, the number of HNWIs slipped from 160,000 in 2015 to 136,000 in 2022.
South Africa, Nigeria, and Egypt saw declines of 7,500, 5400 and 1,500 high net worth individuals respectively.
The 2015 report showed that the number of HNWIs in Nigeria increased by 305 percent to 15,400 in the 15 years between 2000 and 2014.
In 2015, the African economy was on the cusp of growth, recording over 160,000 people with personal fortunes of over $1 million, a two-fold increase over the number of wealthy individuals since the turn of the century, analysis shows, but much of this wealth has evaporated even as poverty deepened.
The total wealth held in Africa fell by 7 percent over the past decade (2011 to 2021) on the back of poor returns in the three largest African markets, namely South Africa, Egypt, and Nigeria. Angola also performed poorly.
Human costs including government economic policies were largely to blame. In Nigeria, the government has continued to fund petrol subsidies at the detriment of investments to improve human capital, healthcare and business-enabling infrastructure.
University lecturers have down tools for the past seven months agitating for better working conditions, while Nigeria plans to spend N6 trillion, more than the projected oil income for 2023, to fund subsidies on petrol.
President Muhammadu Buhari’s government shuttered the country’s borders to trade for a year, months after the country signed into a free trade pact on the continent, to ostensibly check rice smuggling stifling an economy already on the ropes.
Apart from the human cost, the coronavirus outbreak has had a severe economic impact on the continent. COVID-19 decimated the travel, hospitality, and entertainment sectors, causing many HNWIs in these sectors to lose significant portions of their wealth.
The pandemic has also caused HNWIs in Africa to change their habits. Recent new trends include: remote work, a move towards private jet travel, especially among the super-rich and outdoor hobbies, and sports that allow for easy social distancing (such as golf, hiking, fishing, cycling, and bird-watching) have become more popular.
Some of the poorly performing countries on the high net worth index point to a decline in the important factors that drive wealth.
Nigeria and South Africa especially present clear cases of how government policies have worked against wealth creation.
In Nigeria, the central bank’s so-called unorthodox foreign exchange management has strived to prop up the naira by maintaining an artificial exchange rate constraining outflows which have starved businesses of the opportunity to access forex.
“Between 2015 and 2022, the naira has depreciated sharply against the dollar. Ideally, when the Nigerian naira depreciates, their net worth reduces in dollar terms. And for investors who do their businesses in the country and earn naira in cash flows, their net worth must have reduced in dollar terms,” said Damilola Adewale, a Lagos-based economic analyst.
Adewale said everything is tied to poor policy choices of CBN as regards foreign exchange rate.
“Some of the issues we have with FX rate are widening disparity between official and parallel market rate,” he said.
One of the international airlines operating in Nigeria recently threatened to shut its operations in the country over its inability to repatriate funds. Wealth migration and ease of investments are critical drivers of private wealth, which Nigeria has done little to encourage.
Rising crimes in major cities, including Johannesburg and several places in Nigeria, have impacted the ability to grow private wealth.
“The safety levels in a country and the efficiency of the local police are probably the most critical factors in encouraging long-term wealth growth,” the report said. “Based on our latest safety index, the safest countries in Africa are Mauritius, Botswana, and Namibia.”
Countries that score high in private wealth have major news outlets that are neutral and objective. “A well-developed financial media is especially important because it helps to disseminate information to investors. South Africa, Mauritius, and Kenya score strongly here.”
The report also said robust ownership rights, a well-developed banking system and the stock market, a low level of government intervention, and an efficient tax system are also enablers of private wealth.