The accumulation of private wealth is increasing significantly in numerous parts of the world, and there is a noticeable shift in where this growth is currently taking place.
Although private wealth is expected to continue to expand in traditionally wealthy regions like North America and Western Europe, according to the EY Wealth Management Outlook 2018, the greatest growth in private wealth will come from the Middle East, Eastern Europe, the Asia-Pacific area and Africa.
These are regions in which many states attempt to regulate private wealth, or see high net-worth individuals (HNWIs) as ‘cash cows’ for the state, targeting them for greater tax revenue. “This has resulted in a drive among the wealthy of these parts of the world to shift their wealth outside the countries they would have called home,” said John Doidge, chairman of the Geneva Management Group, a global financial solutions provider serving the needs of HNWIs. “Huge growth in wealth is seen among the Chinese, for instance, but the government there still keeps a close watch on the business dealings of wealthy people, and so these individuals are choosing to move their assets and their skills out of the country – and often also taking up citizenship of another country.”
A major beneficiary of this trend is Australia, which attracted 10,000 Australian dollar millionaires to its shores during 2017. In view of the fact that each of these wealthy families would have invested at least AUD$5 million in the country, the Australian economy has benefited very significantly. According to a Sydney Morning Herald news report, “…by March 2018, 2000…[applications]…had been approved, delivering a $10 billion windfall to the Australian economy”.
While the majority of these immigrants are from China, with its relatively close proximity to Australia, large numbers of wealthy people from other locations also migrated there. “The largest groups came from Hong Kong, Malaysia, South Africa and Vietnam,” Doidge said, raising the question of the impact that this has on the wealthy people’s home countries. “It must surely be a concern to the governments of these states that so much money is leaving the country,” he said.
“These countries suffer a big loss in terms of the skills that the emigrants take to other parts of the world. It takes talent and skills to amass a large sum of money and those skills are now being applied to the benefit of the host country at the expense of the home country. This is especially true for South Africa and other developing countries,” Doidge said. As regards the situation for South Africans, about 26 wealthy families made the move last year, representing well over R1 billion in assets that they took with them to Australia.
Numerous other South Africans have relocated to the country, too – the largest group of over 4,000 entered the country via its skills stream programme, which is geared to attract individuals in particular professions that are under-supplied by the domestic population. “What is particularly telling about the statistics provided about this trend, which were revealed recently in a report published in the Sydney Morning Herald, is that Australia has managed to position itself as attractive to the HNW market, despite the fact that its tax rates are high,” Doidge said.
“The top marginal tax rate of 45% – in comparison with rates of around 20% in a number of other countries – did not deter large numbers of wealthy individuals from around the world from choosing to settle there.
“The country has succeeded in making itself attractive to settlers from around the world through its various visa programmes, for one thing,” Doidge said.
“The visa programmes open up the door to would-be migrants with the means or skills to address what the country wants: business investment and particular expertise needed for business and services.
“From the perspective of the immigrant, the country is attractive for a range of reasons: benefits provided for the taxes paid; quality education opportunities; a favourable climate; political security; and the relative safety of women in society; among others.”
Doidge believes that South Africa could benefit from taking a similar approach, especially as regards highly skilled wealthy individuals from the African continent.
“With our well-developed infrastructure and economy, natural beauty, world-class private medical and education sectors, top-notch housing for wealthy individuals, and good climate, we should be just as attractive as Australia,” he said. “We already see large numbers of young people from wealthy families from other parts of Africa coming to the country for educational purposes, so it should be possible to attract their parents’ business and property investments here.
“However, to achieve this, we need to focus on visa programmes of the sort successfully introduced in Australia, Mauritius and other countries, and we should be offering greater security for private property ownership.”
The generation of vast amounts of private wealth all over the world creates a significant opportunity for certain countries to benefit from gaining citizens with skills and money to invest.
The example of Australia – as well as of Mauritius – shows that, with the correct approach by a government, the economic boost of such a programme can make a noteworthy difference to the country.
This article was first published by BusinessTech on 12 August 2018.