Wealth Creation in Africa: The Role of Investment Professionals

Wealth is an individual’s, household’s, or community’s net worth. It includes savings, investments, property, and possessions net of debts/liabilities. Wealth can also be thought of as a measure of financial security. A high net worth means a person has a cushion of money to fall back on in an emergency. It can also give people the freedom to pursue their dreams and goals without worrying about money. Ultimately, wealth is about owning resources that make life comfortable.

Financial ads and posters may obscure stockpiled cash for wealth, yet it is not. Cash may provide a sense of satisfaction in the short term, but it will not lead to long-term wealth. Wealth transcends having disposable income; it is about maintaining assets that will continue to grow and generate income. Cash does not trump stacks of cards, but creating a collection should add value when played responsibly. So, although having lots of cash may give temporary satisfaction, it will not lead to lasting wealth.

Wealth creation is the generation of new wealth, typically through prosperity-driven investment and entrepreneurship. Different approaches to wealth creation involve a combination of savings and investment, innovation, and diligence (Hipsher, 2020). Entrepreneurs generate wealth by identifying opportunities and creating a product or service to meet those needs. Investors create wealth by purchasing productive assets directly or investing in viable companies. The standard means of wealth creation demands that individuals live below their means to secure a desired lifestyle. People save by default to enhance their standard of living, take advantage of business opportunities, and build up a nest egg that can finance their retirement or other goals.

[The fundamental mantra of wealth creation is sustainability and growth. Beyond meeting the current short-term obligations, emphasis should be on investing in the capabilities, methods, and techniques that produce sustainable wealth and growth over the long term]

Foundations of wealth creation

The thought of wealth creation probably gives an idea of quantifiable items: money, property (Real assets), and investments. Furthermore, while those things are essential to the overall wealth-building plan, they are only a part of the equation. The other part of the equation deals with the individual (human capital) and their knowledge.

Quantifiable Aspects

Money is any object that is generally accepted as payment in a given country or region. Money can be saved or invested in assets (productive assets) that will appreciate over time. Money as a liquid asset helps investors track wealth and pay short-term obligations. As much as some financial experts advise their clients to spend the money earning interest, a good balance between liquid assets and fixed assets (such as bonds and real estate assets) needs to be struck.

[If Africa wants to achieve the success of the world’s developed economies, households and governments need to put money aside for strategic investments that have the capacity to generate future wealth]

Property ownership remains an essential element of wealth creation. Through land, property owners can protect assets against fluctuations and take charge of how to use space. Property owners can also generate passive income through rents and royalties (Atkinson, 2021). African Investment professionals should encourage their clients to buy and own property that can endure bounce-back from challenging global conditions like the coronavirus pandemic.

Investing is the commitment of capital to purchase financial instruments with growth potential in value over time. Some investment plans may accrue lower returns but provide additional funds for retirement needs, such as Social Security payments or healthcare costs. Moreover, it provides an income stream during retirement when age restrictions no longer generate valuable income (Loke & Thomann, 2018). Investments are not risk-free; when investing in stocks or shares, it is essential to consider; tolerance, liquidity, return potential (how much money you might earn on your investments), and tax consequences (if there are any).

Non-Quantifiable Aspects

Another crucial part of the wealth creation equation deals with the human aspect and requires intelligence, desire, patience, and discipline. Wealth creation is not a finite game. While economic utility has to come first, it is less like a competition for winning or losing wealth; instead, it is a constant process of trade-offs, which determines the path to wealth or poverty (Loke & Thomann, 2018). Similarly, it is a critical lesson in financial decisions. Indeed, we all spend and save every day, but we must keep an eye on our behavior and be sure to temper our desires to spend to earn more now. While it may seem like an endless single-duck-in-the-existence, we must economize now to acquire ever-increasing options later.

Time is an underrated factor in wealth creation. Wealth creation comes from effort, which requires patience. The world is filled with fraudsters who plunder people’s desire to become wealthy in just a few hours. It is also fair to say that many intelligent people have fallen prey to scammers because of impatience. The impatient never builds a lasting business empire. It would be best to advise young Africans to work, build wealth and give money “time” to generate more. Financial hurdles only deviate into nadir if you rush to shortcut the process. Plans that promise quick wealth to mislead you. Be that as it may, the critical threat to wealth is not fraudsters. The real threats are the forces of inflation and your inability to save enough. 

[Wealth creation requires discipline, sacrifice, persistence, commitment and delayed gratification. It requires a lifestyle shift from short-term thinking to long-term thinking]

Challenges to Wealth Creation in Africa

Today, several factors in Africa’s challenges exist, but the biggest problem inhibiting the country’s economic prosperity is low levels of cross-border trade and high taxes. High taxes, low cross-border trade, and limited access to capital are all contributing factors (Bresson, 2018). In many inner-city areas of Nigeria, taxes can be as high as 50%. This means that the small businesses that are the backbone of any economy cannot thrive without government support. Large companies with access to massive amounts of capital can also send their goods to other parts of the world while importing business products they can sell. It makes it impossible for smaller businesses to compete and grow.

Africa has a challenge of increasing the amount of money individuals and households save and investing it in businesses and projects. Africa has an average GDP per capita of only $4,000 per year. This is a far cry from countries like South Korea, which have an average GDP per capita of $53,000 annually. The low-saving culture also denies the continent enough funds to invest in strategic projects that spar economic growth. To achieve the desired economic growth, governments procure expenses and debts that are counterproductive in wealth creation.

Another challenge is weak property rights (especially land titling). It is particularly true in rural areas where residents may not have access to legal documentation for their property (Schargrodsky & Galiani, 2010). Many African governments do not have strong laws protecting property rights, so they cannot enforce contracts or prevent land ownership disputes between citizens and corporations which want access. It slows saving and investments in real estate, which is crucial for wealth creation because property ownership increases security for individuals who invest in real estate projects.

In Africa, non-strategic government spending is another barrier to wealth creation. More tax revenues are spent on recurrent budgets (wages, subsidizing consumption, etc) than on projects that create wealth (for example, investing in infrastructure).

Africa faces challenges in wealth creation due to a poor business environment and inadequate infrastructure (especially in the energy and transport sectors). Investments in projects that generate future wealth may be less attractive in countries with poor business environments and infrastructure. These hinder the ability of businesses and individuals to grow and create wealth because there is no incentive to save more and invest in new projects.

The cost of business start-ups in Africa is very high. Across Africa, average start-up costs are $10,000. In Africa, $1,800 per year is the average worker’s salary. Ergo, business start-ups in Africa grow slowly because most countries lack capital or are poor sources of loans. As a result, many small businesses don’t know how to borrow money from the formal microfinance system. Without access to formal banking institutions, the average loans by microfinance institutions may struggle to reach their potential lending limits.

Conclusion:

Africa has been central to some of the most significant global conflicts. As a result, poverty and inequality are still at large in the continent, making it difficult for people to create wealth. Investment professionals are well-positioned to help mitigate these challenges. They have access to capital markets where they can invest for their clients, which allows them to create wealth for their clients in ways that will not be limited by geography or national borders.

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