The Africa Wealth Report(AWR) 2023 has indicated that private wealth is a far better measure of the financial health of an economy than Gross Domestic Product (GDP).
According to the report, in many developing countries, a large portion of GDP flows to the government and therefore has little impact on private wealth creation.
The report also highlighted that GDP ignores the efficiency of the local banking sector and the local stock market at retaining wealth in a country.
It further states that GDP largely ignores the impact of property and stock market moves, yet these two factors clearly have a significant impact on wealth.
Said the report:”GDP is a fairly static measure that tends to move only slightly year on year and, as a result, it is not a sufficiently true and adequate gauge of the performance of an economy.”
Wealth figures, on the other hand, have none of these limitations, making them a far more accurate gauge of the financial health of an economy than its GDP figures.
The AWR researchers are of the view that the top factors that encourage wealth growth in a country include strong safety and security measures.
They explained that 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.
According to New World Wealth’s in-house safety index for 2022, Mauritius ranks as the safest country in Africa, followed by Namibia.
The AWR states that only industries that bring new money (foreign exchange) into a country help to build its wealth, which include export sectors such as tech, mining, and manufacturing and tourism.
The third factor that can contribute to wealth growth is media freedom. “A well-developed media is especially important as it helps to disseminate information to investors. South Africa scores strongly in this aspect,” the report states.
TIt further lists robust ownership rights as the fourth factor for wealth growth, as the consequence of taking away the legal ownership rights of individuals is that once assets are stripped away they tend to devalue.
This is because potential purchasers become no longer willing to risk buying and/or investing in property.
A well-developed banking system and the stock market is the fifth factor that can contribute to wealth building.
The WAR researchers explained that the banking systems and the stock market are critical in ensuring that individuals invest and grow their wealth locally. Kenya, Mauritius and South Africa all score strongly in this regard.
Tax rates are also found to be a factor in growing individual wealth, according to the report.
Globally, the UAE, Mauritius and Singapore are cited as examples of the power that tax rates can have in encouraging business formation.
Lastly, wealth migration has also an impact on individuals’ ability to build their wealth.
According to the WAR researchers, migration of high-net-worth individuals to a country increases foreign exchange inflows, boosting wealth growth.