The ultra rich—those who hold more than $30 million each—have increased their assets by 8.5% to $33.3 trillion in 2005 from $30.7 trillion in 2004, Merrill Lynch and Capgemini said in their 2006 World Wealth Report (WWR).
The Middle Eastern share of high net-wealth individuals (HNWI) in 2005 amounted to $1.2 trillion, representing the strongest growth rate by region with 19.7% when compared with $1.0 trillion in 2004. Africa and Latin America followed with growth rates of 14.5% and 11.8%. Compared with $800 million combined HNWI assets in 2003 in the region, the wealth of the Middle Eastern rich increased by half in just two years.
In terms of individuals, the HNWI count for the Middle East increased by 9.8%—more than the global increase rate of 6.5% in 2004-2005—but remained in the range of 300,000 to 400,000 individuals.
Rising oil prices a factor
The WWR attributed the Middle East’s strong HNWI growth generically to the world market’s rising oil prices as well as heightened investor confidence and large trade-driven surpluses in the region. Observing that combined HNWI assets increased significantly faster than HNWI numbers, the report said the region’s wealth “not surprisingly … continues to experience an inequitable distribution.”
Counting 1.1 ultra-HNWIs for each 100 HNWI, the Middle East was very close to the global average as far as proportion between rich and super-rich is concerned. Out of 8.7 million HNWIs worldwide, 85,400 hold assets of $30 million or more.
A table of HNWI population changes in select economies showed the year’s strongest growth for South Korea, with 21.3%, followed by India and Russia. Saudi Arabia achieved 13.5%, and the United Arab Emirates 11.8%.
Globally, the very rich have doubled their combined wealth to $33.3 trillion in 2005 from $16.6 trillion in 1996 when the World Wealth Report was first published. However, as HNWIs grew in numbers to 8.7 million last year from 4.5 million a decade earlier: assuming increasingly sophistication survey mechanisms over the years have filled gaps in the initial counts, growth in the numbers of individuals and their total assets are closely correlated and moreover intertwined with global economic growth over the period.
This is also visible in the fact that the evolution of combined wealth and that of individual wealth holders has followed a very similar pattern, of increasing 62% and 56% from 1996 to 2000, undergoing a contraction in 2001, and resuming steady expansion from 2002.
On the cost-of-being-filthy-rich side, the report noted a narrowing of the gap between the “Cost of Living Extremely Well Index” growth and average Joe’s consumer price index inflation. In 2005, the CLEWI grew 4%, only 0.4 percentage points more than the CPI with 3.6% growth. Two years earlier, the gap had still amounted to 5.5 percentage points, according to the WWR.
How did they do it?
In Europe, where HNWI growth rates have been subdued compared with other world regions, the rich additionally bear the cross of having to spend more on staying in style. According to Capgemini/Merrill Lynch, heavily moneyed individuals in Europe have to allocate around 1.6% of their average wealth for sustaining lifestyle aspects such as lodging in five-star auberges, maintaining that body and tan in spa visits and securing their children’s education in private schools.
As to the big question—how did they get that wealthy?—
the 2006 WWR observed an increase in earned wealth vis-à-vis inherited riches, diagnosing that over the past five years, “earned wealth has grown faster than wealth passed down from an earlier generation.” Inheritance last year was the main origin of wealth only for Middle Eastern individuals, where a WWR survey among relationship managers described it as source of 32% in HNWI wealth, 14 percentage points above the global figure.
On global level, the survey attributed HNWI fortunes firstly to ownership or sale of a business (37%), followed by what the report quite loosely described as “income” with 24%.
This income excluded items such as investment returns and stock options, which in their combination accounted for a share of wealth ranging between 25% in North America and a mere 10% in Latin America. Investment performance, the direct bailiwick of Merrill Lynch and Capgemini, contributed less than one might have expected to the total, namely 12% in Asia-Pacific and 10% in each Europe and North America, but only 5% in the Middle East and 3% in Latin America.
Looking to the future, the WWR estimates that HNWI assets will increase to $44.6 trillion in 2010, of which the Middle East will claim $1.8 trillion, reflecting an annual regional growth rate of 8% versus the estimated global annual growth rate of 6%.