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Middle East private wealth set for strong growth to reach $12 trillion

Over the next five years, wealth in the Middle East and Africa region is set to reach $12 trillion, according to the findings in a recent study by The Boston Consulting Group (BCG).

The region’s super powers UAE, Saudi Arabia, Qatar and Oman will account for 21.1 per cent of the total wealth in the region, the management consulting firm’s report reveals.

In 2016, total private wealth in the region grew by 8.5 per cent to reach $8.1trn. This compares with the growth of less than 2 per cent the previous year.

On the other hand, globally it grew by 5.3 per cent in 2016, to $166.5 trillion, driven primarily by accelerating economic growth and the strong performance of equity markets in many parts of the world.

Switzerland remained the largest destination for the MEA’s offshore wealth in 2016, accounting for 31 per cent with a projected Compound Annual Growth Rate (CAGR) of 4.7 per cent over the next five years. This was followed by the UK/Channel Islands at 23 per cent with a CAGR of 5 per cent, and Dubai at 18 per cent with a CAGR of 4.5 per cent.

“In the Middle East and Africa (MEA), wealth expansion should stem, in relatively equal portions, from existing assets and higher household savings,” says Markus Massi, Senior Partner & Managing Director of BCG Middle East’s Financial Services practice.

“Looking ahead, the share of wealth allocated to each asset class is expected to remain stable, with regional wealth projected to rise at an annual rate of roughly 8 percent through 2021. In the coming years, more local players will enter the wealth management market as traditional revenue pools become more competitive.”

Spotlight on the UAE

The UAE continued to lead GCC private wealth growth with a significant increase of 8.3 per cent in 2016,

The private wealth in the country is projected to reach nearly $0.8trn in the next five years but the growth is expected to decrease to 7.4 per cent in the same period however.

The growth of private wealth was driven primarily by equities. The amount of wealth held in equities increased by 9.3 per cent, in comparison to cash and deposits at 8.4 per cent and bonds at 3.8 per cent.

Through 2021, the primary contributors to the will be cash deposits, at 5.5 per cent CAGR and bonds, at 3.6 percent CAGR.

Taking an in-depth look at wealth distribution, private wealth held by ultra-high-net-worth (UHNW) households (those with above $100 million) in the UAE grew significantly—by 8.8 per cent— in 2016. Steady growth is expected to continue through 2021, with private wealth held by this specific segment growing at a CAGR of 9.4 per cent.

The upper high-net-worth (HNW) segment (those with between $20 million and $100 million) experienced the strongest growth at 11.2 per cent. In the next five years, the projected growth of this segment will see a slight slowdown to 9.9 per cent CAGR.

The private wealth held by the lower HNW segment (those with between $1 million and $20 million) witnessed a steady growth of 10.5 per cent in the last year. Private wealth in this segment has a projected CAGR of 8.8 per cent over the next five years. The segment is also expected to experience a slight slowdown in growth in the next five years.

The total number of millionaire households (those with more than $1 million in net investable assets) in the country increased by 5.9 per cent in 2016. Looking ahead, growth is set to slow to 4.8 per cent by 2021.

“To build successful business models and optimize cost reduction, wealth managers need to increase their investments. Although companies in a number of other industries have taken this approach to the evolving digital environment, many wealth managers have not, as such segmentation of clients on the basis of their behavior has often been neglected. Old ways of doing work are ceasing to be efficient in the new private banking environment,” adds Massi.