Africa, a land of opportunity for family offices?

Despite having its fair share of difficulties, Africa is slowly but surely developing a dynamic family office ecosystem. In the years ahead, that ecosystem has the potential to rival the other big emerging regional economies, but in the meantime there as still many challenges. 

Wealth distribution statistics are bleak, but there is also significant wealth in Africa. According to a recent report, total individual wealth amounting to $2.2 trillion, with approximately 145,000 high-net-worth individuals holding $800 billion of assets. This figure is expected to rise to 198,000 by 2026, helping to fuel economic growth rates that are expected to be higher than other emerging and developing markets in a few years time. 

It would be logical to assume, given these statistics, that the family office sector would be gaining traction as observed in more developed regions like Asia, Europe and the US. But the concept of the family office has not yet been fully embraced by most of Africa’s wealthiest families. Often the necessary structures, processes, systems and partnerships are not in place to support sustainable multi-generational wealth preservation and to optimize investment.

Also, like Asia, which is often misconstrued as a single region, the diversity of cultures across Africa presents unique challenges. According to Nike Anani, a Nigerian-based family enterprise specialist: “Publicly available information on Nigerian family offices is scarce. We do not have an association of family businesses or family offices. In fact, one rarely sees family offices in Nigeria. Most wealthy families in Africa’s biggest economy don’t have a central structure and tend to manage their wealth in a haphazard way.”

Anani adds: “There are a few exceptions like the Danjuma Family Office, which manages the assets of the Nigerian Danjuma family, and Nigeria’s Tony Elumelu’s Heirs Holdings, but these family offices are typically based outside of Africa.”

Given these factors, Anani highlights the following issues for the African family office sector:

1. Diversification: A large portion of family wealth is tied up in their operating businesses and in real estate, creating liquidity challenges.
2. Volatile business environment: Unstable economies create high levels of uncertainty and unpredictability, inhibiting or threatening wealth.
3. Lack of in-country investment options: Too many large investment opportunities are politically exposed
4. The investment approach is too conservative: When they do diversify, wealthy Africans do not tend to take sufficient risks; They like to keep their wealth in cash or very liquid assets, which will not generate sufficient returns.
5. Extended Families: Africans tend to have larger nuclear families and more fluid definitions of family. Therefore it is likely that wealth is shared among more beneficiaries than in other jurisdictions.
6. Disconnection from global community: There is very little awareness globally of the issues African family offices tend to face as there is little representation in global associations by way of speakers and members.
7. Succession: Most family offices are first-generation resulting in many being faced with next-generation succession challenges. African family businesses also tend to have a substantially lower success rate for first-generation succession with some reports placing this number as low as 2%, far lower than the global benchmark of 30%.
8. Reputation management: Positive positioning on the global stage remains an issue for wealthy African families. From an external global viewpoint, there is very little awareness of the issues African family offices and family businesses tend to face as there is little African representation in global associations by way of speakers and members.

That said, it would be wrong to conclude the family office sector in Africa isn’t evolving and opportunities don’t exist. According to Anesu Bridget Mhlanga, who is CEO of an African-based family office: “Family offices in Africa have the potential to change the face of the continent. Africa abounds with opportunities and as this continent continues to take a more visible position on the world stage, the role of African family offices will become more prevalent.” 

She adds: “In Africa, the time has come for wealthy families to formalize and leverage their wealth to make more of an impact on their environment and society as a whole. There is also the potential for African families to work together as a way of accelerating regional integration.”

Africa also has some wealth havens that could help support the development of family wealth. Mauritius is one of the fastest-growing wealth markets anywhere. Being a safe, business-friendly country with low tax rates compared to the rest of Africa, Mauritius is a hotspot for migrating wealthy individuals and families from across the world. The latest Wealth Migration report from AfrAsia bank highlights that they expect a 130% growth for Mauritius over the next 10 years.

And there are good examples of thriving family office structures in Africa that offer a blueprint for success, as the head of South Africa’s most successful family businesses, says. 

“Our family office is relatively advanced by global standards, and interestingly, I am finding that many international offices are benchmarking themselves on what we do,” says Gareth Ackerman, chairman of South African retail giant Pick ‘n Pay. 

“We have successfully focused our family office on optimizing governance, paying special attention to soft factors as well as managing inter-generational challenges.”

Francois Botha is the founder of Simple, an international full-service family office consultancy focussed on the next generation.

https://andsimple.co/