_New horizons - the new global hotspots

Geopolitical events have always had the power to reshape the landscape for economic growth and wealth creation. Increasingly though, the rise of globalisation is augmenting the influence of “local” events, giving them the potential to change the outlook not only for one country but also the wider region and, in some cases, the whole world.

Alongside this trend, a tidal wave of “populism” – marking a departure from the political norms seen in recent history – has increased the chances that economic fortunes will pivot on political outcomes.

The UN recently calculated that the Arab Spring has cost the Middle East some US$600bn in lost economic growth, while regions around the world are trying to anticipate what impact the presidency of Donald Trump, who is already busily reshaping US foreign policy, will have on their economies.

Forecasting the future is always a challenging business, but in this environment, it becomes even more so. Our New World Wealth forecasts for wealth creation, explored on previous pages, are largely based on economic modelling, as are many of the forecasts issued by large organisations around the world.

However, there is a range of opinions on where, how and why wealth growth may emerge, based on varied expectations of future political events.

We asked four leading think-tanks, economists and investors to share their wealth creation hotspots. Their views are thought provoking – and show why numbers may not necessarily tell the whole story. 

Kelsey Broderick
Asia-Pacific analyst, Eurasia Group

In past years, China has driven more than half of the growth in UHNWI and HNWI populations. The question now is how its changing economic model and slowing growth will affect this trend. Much will depend on the pace and scope of reform.

A commitment to expanding channels for overseas investment and deepening domestic financial markets, combined with a shift from manufacturing to services, tech and innovation, will underpin continued wealth creation.

But those who have benefited from government connections and market distortions will see the pace of wealth creation slow, as more sectors open up to competition. In implementing reform, the government will need to balance slowing growth with the risk of domestic unrest, meaning that baseline conditions for wealth creation will persist in the medium term. However, over the long term we expect sources of growth to evolve.

Geoffrey Yu
Head of UK Investment Office, UBS Wealth Management

Nigeria is worth watching as a potential hotspot for wealth creation. The key factor will be whether greater stability of governance can be achieved, but there are reasons to be optimistic, especially after the last general election in 2015.

If there is a further round of political change, people will feel more secure investing from overseas – and the wealth created in the country will be more likely to stay put. The tech and telecoms sector is strong, in particular mobile banking.

As an oil exporter, Nigeria also benefits from the stabilisation and potential uplift of oil prices. It is imperative that any commodity windfall is invested in education, infrastructure and productivity, and in a manner that benefits all segments of this diverse society.

When starting from a low base, very simple changes to political, fiscal and governance frameworks can make a big difference – “the returns on reform” will be high.

Andrew Kenningham
Chief Global Economist, Capital Economics

India hit the headlines in late 2016 over its decision to withdraw high denomination notes in a bid to crack down on the “black economy”. The move created a short-term cash crunch; but it also sent a powerful message about the government’s determination to modernise the economy and reduce corruption.

There were further signs of progress too with the passing of the country’s first national bankruptcy law and a national sales tax, raising hopes that long-delayed reforms may now take effect to make the labour market more flexible and facilitate land acquisition.

India has a resilient, diversified economy; it is not reliant on commodities and its domestic and foreign debt burden is manageable. Finally, with a number of hotspots across the country, including Mumbai, Chennai, Hyderabad, Bengalaru and Delhi, and many sector specialities, there is a broad base for economic growth.

Deon De Klerk
Head: Wealth Africa, Standard Bank Wealth and Investment

With rapid urbanisation, greater financial inclusion and a youthful population, sub-Saharan Africa offers major growth opportunities. While each country is unique, there are some common themes. Agriculture is one example: as global pressure on food production grows, the focus will inevitably turn to Africa, which has 60% of the world’s unplanted arable land.

Another is consumption, with the growth of the middle class going hand in hand with greater stability and better governance. Ghana, which saw a peaceful handover of power following last year’s election, imports around 90% of goods, creating real opportunities for entrepreneurs.

This is also true of Kenya, despite the risks posed by the forthcoming election. We see the potential for entrepreneurs to do well in these countries and elsewhere, whether by creating stronger, smarter family businesses or providing professional services as economies expand.