Alpha African Advisory

Recently, the Nigerian government’s focus on HNIs has increased, especially as it looks for ways to optimise taxation within this affluent demographic, whether individuals or organisations.

For example, in December 2024, the Federal Capital Territory (FCT) Internal Revenue Service created a special unit to focus on individuals who earn an annual income of ₦25,000,000 upwards. This initiative aims to increase tax compliance among HNIs in the FCT. This underscores the significance of HNIs in shaping Nigeria’s economy and how much recognition they are beginning to get.

Now, let’s explore who these HNIS are and why they are so important to the economy.

Who are HNIs?

On a global scale, the benchmark for an HNI is someone with assets worth over $1 million in liquid financial assets. According to the Securities and Exchange Commission (SEC) Nigeria, an HNI is an individual whose aggregate net worth of investment assets exceeds 100 million Naira.

According to Statista, Nigeria has the third highest number of HNIs in Africa with a total of 9,800 people worth over $1 million. These HNIs can be seen across various industries, from popular entrepreneurs like Dangote to influential businesses such as investment firms, and family-owned business.

Characteristics of Nigerian HNIs

1. Wealth thresholds

HNIs are classified based on their net worth, excluding primary residences and personal property. Here is a quick breakdown:

• Mass Affluent: $100,000 to $1 million
• High Net-Worth (HNW): $1 million to $5 million
• Very High Net-Worth: $5 million to $30 million
• Ultra-High Net-Worth: Over $30 million

In Nigeria, HNIs primarily fall into the HNW and Very High Net-Worth categories. However, there is an increasing number who are joining the ranks of the Ultra-High Net-Worth space, like Femi Otedola and Tony Elumelu who have a combined net-worth of over $2 billion.

2. Liquidity

A key factor that differentiates HNIs is their access to liquid assets. This allows them to quickly grab opportunities, address emergencies, or diversify their portfolios easily.

3. Sophisticated financial management

HNIs often work with wealth advisors, financial planners, and portfolio managers to manage their assets effectively. Their strategies typically include:

• Tax planning
• Estate management
• Diversified investment portfolios

Impact of Nigerian HNIs to the economy

1. Investment and market influence

It’s no news that HNIs in Nigeria wield significant economic power. Their decisions shape market trends, fuel startups, and influence industries like real estate, fintech, and oil and gas. If you look at Aliko Dangote’s investments, you can see how his cement and agriculture have shaped entire sectors.

2. Philanthropy

Beyond business, Nigerian HNIs play an important role in addressing societal issues through philanthropy. Their foundations and trusts focus on issues concerning healthcare, education, and poverty alleviation. A notable example is the Aliko Dangote Foundation, which has funded health and disaster relief programmes across Africa.

3. Influencing luxury and consumer trends

HNIs are a key force behind luxury markets; they create demand for bespoke services, high-end real estate, and premium products. This trend also extends to corporate entities that invest in exclusive business lounges, private jets, and premium hospitality.

Challenges faced by Nigerian HNIs

In reality, wealth provides great advantages and opens many doors of opportunities, but they also face heavy challenges such as:

1. Economic volatility: Nigeria relies a lot on oil, thereby, making HNIs vulnerable to market fluctuations and currency instability.
2. Regulatory scrutiny: HNIs often face increased audits and stricter regulations, particularly as the government seeks to expand its tax base.
3. Security concerns: Wealth comes with high visibility, which most times, increases risks for HNIs, including fraud and privacy violations.
4. Wealth preservation: To build wealth and sustain it across generations requires robust estate planning and risk management strategies, some or all of which they don’t have the knowledge to create.

Financial management strategies for Nigerian HNIs

• Portfolio diversification

The saying “do not put all your eggs in one basket” holds true for HNIs as well. They should focus more on diversifying their investments, including equities, bonds, real estate, and alternative assets like hedge funds or private equity.

• Tax optimisation

Effective tax planning is important to minimise liabilities while ensuring compliance with regulations. This can be done by leveraging trusts, offshore accounts, and charitable donations.

• Risk management

To protect against financial or operational risks, HNIs should use insurance and other hedging techniques/tools.

• Estate planning

For both individuals and organisations, estate planning is necessary for ensuring a financial legacy. Trusts and wills are commonly used to protect one’s wealth for future generations.

Aspirations toward high net worth

Becoming an HNI requires one to work hard and smart. One must maintain financial discipline, strategic investments, and a focus on long-term wealth creation. If you are looking at coming up the ranks, then these are some steps that you can take:

• Start early by taking advantage of the power of compounding by investing as soon as possible.
• Stay informed about financial markets and emerging opportunities. You cannot sustain wealth if you don’t educate yourself.
• Seek professional advice from wealth managers or financial advisors to optimise your strategy.
• Spread your investments across various asset classes to reduce risks.

In conclusion, HNIs, whether individuals or organisations represent an important segment of Nigeria’s economic and social fabric. Their financial management practices, philanthropic contributions, and influence on industries position them as drivers of growth and innovation. The only way to survive Nigeria’s current economy is for HNIs to understand these challenges and create strategies that provide valuable insights for them. This goes for businesses, policymakers, and aspiring HNIs.

With over 17 years in the transaction advisory and financial management space, Alpha African Advisory (AAA) is uniquely equipped to help high-net-worth individuals (HNIs) manage their portfolios and assist aspiring HNIs in positioning themselves for success. Our comprehensive services include fundraising, transaction structuring, project finance, debt restructuring, business valuations, mergers and acquisitions, policy advisory, and market entry, ensuring tailored solutions that align with each client’s unique financial goals.

By leveraging our extensive experience and deep understanding of the African financial market, we can empower you to navigate complex investment environments confidently, fostering sustainable growth and wealth preservation. For more information, visit alphaafrican.com