Wealth Management in East Africa

June 23, 2015

East Africa’s economic boom is resulting in the emergence of a new middle class, heralding vast opportunities for global wealth management. Since the 2000’s, growth in this region is primarily driven by agriculture exports, raw materials and manufacturing. Today, the East African countries of Uganda, Tanzania, Kenya, Rwanda and Ethiopia are on their way to become one of Africa’s leading consumption hubs, fueling demand for a variety of goods and services, including financial services.East African Community is composed of Kenya, Uganda, Tanzania, Rwanda and Burundi with membership applications by war torn Somalia and South Sudan pending approval.I believe East African middle class will play an increasingly important role in the shift in the balance of Africa demand over the next few decades, opening up new and unprecedented opportunities for the region and the world.With about 140 million people, East African Community countries represent only slightly over half of Nigeria’s population but collectively generate a less gross domestic product. By 2020, East African Community GDP is expected to grow at an annual average of 6 percent and reach $250 billion which is less than half of current Nigeria’s GDP of $555 billion.By 2025, East African countries are likely to contribute to more than a quarter of the total Africa middle class population, with the region accounting for more than $30 billion of new consumption, according to the International Monetary Fund recent studies. Half of East African state’s projected population will be aged under 30.

With growing purchasing power comes greater aspirations among East African consumers, driving stronger demand for property, cars, quality education and health care as well as financial services and wealth management.Consumption patterns in the region, however, are not even across this expansive and diverse region.I expect consumers in the region to continue directing a large portion of their disposable income towards improving general living standards whilst those in mature markets will forge ahead in consumption and investments.For example, discretionary spending by more affluent middle class populations in Kampala, Kigali, Nairobi, Mombasa and Dar Es Salaam is far more pronounced in the region while spending in Bujumbura and the is focused on vehicles, appliances and education services to enhance quality of life.Whilst Kenya has the highest rate of credit card ownership, its emerging middle class is only starting to develop an appetite for luxury goods with the recent opening Garden City mall along Thika road being a vote of confidence in that narrative.As populations across the region become more affluent and the emerging middle class continues to expand, there is a pressing need for services that will help individuals and families preserve, protect and perpetuate their new found prosperity.As East African populations age, they will need new channels to save for retirement, fund rising costs of health care and ensure adequate insurance protection in the absence of well-established social security systems.I expect financial wealth in East Africa to grow even faster than in South African region over the next four years, creating opportunities in international wealth and asset management.

The region has one of the highest saving rates in the continent at around 22 percent.While financial assets remain heavily concentrated in cash and in some markets, concentrated on single assets such as stocks, we expect investment behavior among East African savers to eventually build a diversified portfolio of assets and move away from home biases.Regional financial integration and market liberalization such as what is unfolding in Kenya will allow for more efficient risk diversification of assets.The development of financial systems will also provide easier access to financing.I see a future where wealth growth, protection and financing retirement, education and lifestyle needs will become priority goals for East African consumers. It is critical that financial solutions are designed to meet these long term saving needs, offer transparency and fair value.It is important that consumers have access to timely and relevant market information from Nairobi Securities Exchange or Uganda Securities Exchange to help them make informed investment decisions either through self-directed channels or through qualified advisors.There is also a need to ensure banking and wealth management cater to new consumer behavior.As new working class gains greater financial independence, they seek new experiences through travel, education and employment opportunities overseas. The rise of the middle class will continue to be the big story for East Africa economies over the coming years. The promise of growth will transform one of the most overlooked regions in the continent thanks to terror threats of Somalia based militants to one of the most important.

Contador Harrison