Richest people in South Africa leaving the country

Heirs to South Africa’s wealthiest families have mostly emigrated out of the country, choosing to live elsewhere for enhanced security and a lighter tax burden. 

Flux Trends founder and CEO Dion Chang unpacked some trends among South African high-net-worth individuals (HNWI) at a recent Melville Douglas investment conference. 

Melville Douglas is a boutique investment management firm within the Standard Bank Group that specialises in managing money for endowments, charities, and families of HNWIs. 

Chang’s presentation revealed that the heirs to wealthy South African families have mostly emigrated, which is starting to present a significant threat to succession planning for local wealth planners.

Chang explained that the move of wealth out of South African borders means that South Africa’s generational wealth has been added to the global wealth pool. 

This presents local advisors and planners, such as Melville Douglas, with unique challenges in trying to keep “old money” on our shores.

The insights also revealed that the new wealth client is not only younger (in their 30s or 40s) but also that their fortunes have been acquired from alternative sources of income, such as social media influence and crypto.

This also presents unique challenges to wealth managers as money earned in these areas can disappear as quickly as it comes, putting greater emphasis on the need for diversification. 

In response to the presentation, the Head of Standard Bank Group Investments, Duncan Wattam, said that these changes also present an opportunity to local asset managers. 

“Perhaps our greatest concern – and possibly our greatest opportunity of entry – lies in the shift of the HNW demographics,” he said. 

“Just as changes in the market require a new approach to investing, changes in demographics require a new approach to attracting, advising and retaining those new clients,” Wattam said. 

“The challenge is for the industry, as a collective, to creatively solve for attracting the HNW millennial who has no precedent to a particular firm but sitting with millions of uninherited new wealth.”

It is not only the wealthy who are leaving South Africa, with middle-class professionals also increasingly looking to leave the country. 

A new report from Statistics Canada revealed that five groups of skilled professionals are leading the migration out of South Africa.

They include farmers and agricultural workers, recreation and sports professionals, mechanics, specialist physicians, and financial auditors and accountants.

Andrew Woodburn, the managing director at Amrop Woodburn Mann, said the six main countries attracting South African talent are the United States, United Kingdom, Australia, Israel, Canada, and New Zealand.

He said these countries benefit from South Africa’s poor talent policies and other matters, making it attractive for skilled professionals to consider emigration.

“Other countries prey on South Africa’s poor policies that are triggering people into leaving. They are attracting the talent which is valuable to them,” he said.

As the wealthy and professionals leave South Africa, this results in declining tax revenue for the country and results in more being squeezed from a smaller base. 

Following the Finance Minister’s Medium-Term Budget Speech (MTBPS), SARS Commissioner Edward Kieswetter revealed why tax revenue is under pressure in South Africa. 

He explained that this is mainly due to lower personal income tax as South Africa’s economy continues to struggle to add jobs, and wage growth remains poor. This has also been impacted by emigration as skilled professionals go elsewhere for employment. 

“We’ve also seen an uptick in applications for individuals to end their tax residency because they relocate to overseas countries,” Kieswetter said.

This increase in emigration presents a significant problem for South Africa’s tax revenue, as the country already has a very small and overburdened tax base.

Henley & Partners, in its Africa Wealth Report, revealed the top factors that encourage wealthy individuals to move countries. 

Based on research done by New World Wealth, the top factors that encourage wealth growth include –

• High numbers of millionaires living there 
• Strong safety and security
• Growth in key economic sectors
• Competitive tax rates
• A well-developed banking system and stock market
• Media freedom 
• Strong ownership rights. 

South Africa ranks highly on many of these factors. However, recent political and social instability, exemplified by the July Riots of 2021, scares away wealthy individuals. The country’s lacklustre economic growth also prohibits organic wealth creation.