Wealth Distribution in the Covid-19 Era
Dr. Juerg Steffen, the Chief Executive Officer of Henley & Partners
With a growing number of millionaires considering relocation to protect themselves and their families from potential political instability and to circumvent Covid‑19‑related global restrictions, countries around the world have increased the range of available migration paths, including introducing residence and citizenship by investment programs, to cope with the demand.
For those of us who have been following the trend, it is interesting to consider the global distribution of millionaires, as well as where they choose to migrate to and from, and why they do so. A millionaire is an individual with a net worth (the value of their financial assets and real estate after deducting any debt) of more than USD 1 million. But it is useful to distinguish between high‑net‑worth Individuals — those who have a net worth of at least USD 1 million in liquid assets — and ultra‑high‑net‑worth individuals — those who have more than USD 30 million in liquid assets. A myriad of factors motivate the wealthy to migrate — and the reasons usually differ between high‑ and ultra‑high‑net‑worth individuals. Traditionally, however, these factors include the desire for better education options, a higher standard of living, a more desirable climate or less polluted environment, and opportunities for business diversification. Indeed, the Covid‑19 pandemic, and the latest socioeconomic upheavals and political developments in some of the more vulnerable parts of the world, have highlighted for many people — and especially the wealthier population — the need to improve safety and security for their families, escape oppressive or corrupt regimes, access world‑class healthcare, and enjoy more favorable tax environments.
In the lead‑up to 2020, wealth migration had been accelerating steadily — approximately 108,000 high‑net‑worth individuals migrated in 2018 compared to 95,000 in 2017, 82,000 in 2016, and 64,000 in 2015. However, the outbreak of the Covid‑19 pandemic in late 2019, and the associated protracted lockdown and travel restrictions that characterized 2020 and 2021, have impacted on global mobility in ways that remain challenging to define. What is clear is that the mobility of all individuals has been severely curtailed, and affluent investors are no exception. Despite the limits imposed on mobility rights, ever‑growing numbers of high‑net‑worth individuals are enquiring about residence and citizenship by investment programs, leading the industry to be worth an estimated USD 25 billion in 2019.
Figure 1. Top territories gaining or losing millionaires in 2020 (thousands)
Table 1. Top territories gaining or losing millionaires in 2020 and Henley Passport Index 2022 Q1 visa-free/visa-on-arrival scores
A new era for investment migration
Despite increases of 7.6% and 6.3% in global wealth levels and the global high‑net‑worth population, respectively, in 2020, Covid‑19 severely disrupted the global economy. From the first half of 2020 and well into 2021, many lost vast assets. In some countries, the handling of the ongoing health crisis has been regarded as disappointing by citizens, the business community, and investors in general. In addition to the challenges caused by this crisis, several governments have consequential fiscal changes to support the health and economic recovery of their countries, and to repay the stimulus aids secured by central banks. Aware of the risks of budget deficits and quantitative easing, some Western economies restricted budgets in 2021, yet the damage has been done. To avoid losing purchasing power, high‑net‑worth individuals are diversifying their portfolios across asset classes. They have also shown an interest in spreading their investments geographically and in acquiring opportunities to resettle quickly and safely when necessary, even if they are nationals of leading countries. Henley & Partners received 89% more web enquiries in 2021 than in 2020, itself a year that saw a dramatic upswing of interest in North America (+208% in the USA and +47% in Canada), the EU (+55%, +39% and +33% in Italy, Portugal, and France, respectively), Australia (+41%), and the UK (+31%). This was sustained in 2021 (+110% in the UK, +86% in Canada, +77% in France, +26% in the USA, +16% in Australia) and is likely to continue as the current political agendas are implemented.
The countries losing millionaires — and why
In 2013 and 2014, North America and the Asia-Pacific region shared the highest step of the high‑net‑worth market podium (with 4.3 and 4.6 million of these individuals each). The five following years were dominated by the Asia–Pacific region, with China and India generating far more high‑net‑worth individuals than they lost, but 2020 saw the return of North America to the top position.
Defying all odds, equity markets rose in 2020, benefiting mainly the USA, which alone accounted for more than half of the new high-net-worth individuals. The very positive stock market results, largely due to the performances of GAFAM (namely, Google, Apple, Facebook, Amazon, and Microsoft), also prompted wealth in the country to grow the fastest, with a 12.3% increase. Canada contributed to the region’s high-net-worth pool, but with an increase of 2.9% only.
Asia–Pacific markets also performed exceptionally, with some countries in the region continuing to considerably increase the number of millionaires. Despite its steady economic growth, however, the speed of the increase in the region’s high‑net‑worth population has slowed compared to that of the previous year.
China has seen a significant outflow of high‑net-worth individuals, notwithstanding an 11% increase in its high-net-worth population. This outflow is largely a result of its deteriorating political and trade relations with the USA and Australia, and the controversy surrounding the Covid-19 outbreak.
Similarly, Russia’s local political context has also contributed to the diminution in its high‑net‑worth population. Unrest in Belarus, Kyrgyzstan, Nagorno‑Karabakh, and now the war in Ukraine, which has led to sanctions on the country’s financial sector have increased the instability of Russia’s economic prospects, causing the ruble to depreciate. Oil prices have also greatly impacted the Middle East in general, resulting in a decrease of the high‑net‑worth population in Kuwait, Saudi Arabia, and the UAE. With the reboot of the world’s economic activities in early 2021, prices have been climbing steadily. However, the global demand for oil and fuel tends to diminish year after year; it will therefore be interesting to observe the reaction of high-net-worth individuals in these countries in the next few years.
Figure 2. Countries with fewer millionaires: 2020 versus 2019
Figure 3. Countries with more millionaires: 2020 versus 2019
The outbreak of Covid-19 has had a significant impact on the additional citizenship market. It has distorted some of the macro trends observed in 2018 and 2019, but it has also accelerated the interest of high-net-worth individuals in India and in other emerging economies in investment migration programs. In addition, it comes as no surprise that South America has posted a high-net-worth population decrease of 4%, as the region has been severely negatively affected by the pandemic. Brazil, which has traditionally been home to the greatest number of affluent individuals in the region, saw an outflow of 6.6% of high-net-worth individuals and continues to lose wealth, adding extra crime and safety concerns to an already strained health situation.
The picture is slightly different in Europe where, despite better-than-average growth in the Nordic countries, economies have been hit heavily by recession. Notably, the UK suffered a contraction in GDP of nearly 10% in 2020 and lost 3% of its high-net-worth population.
The role of investment migration programs
The figures discussed above relate to all high‑net‑worth individuals who have acquired second citizenship by birth, investment, or other means of naturalization. Several of the countries that reported the highest number of high-net-worth individuals globally in 2020 offer residence by investment programs that include excellent options for private residence, business opportunities, the possibility of acquiring citizenship, and quality of life. Residence by investment programs provide high-net-worth individuals with the option of physically relocating, if they wish, as well as the right to live, study and — perhaps most notably in these uncertain times in a global pandemic — to receive quality healthcare and work in their new country of residence. In the past couple of years, residence and citizenship by investment has bolstered its appeal to wealthy citizens. Some governments have even adjusted their existing programs or created new ones to address the increasing desire to work in jurisdictions that have been less impacted by Covid-19 and for access to more efficient healthcare systems. There are, however, many wealthy individuals who acquire citizenship of a country yet never relocate. Citizenship by investment programs provide families with the privilege of acquiring an alternative citizenship, which in turn gives them the right to travel more freely to a greater number of destinations and to settle in another country. Generally, around 30% of migrating high‑net‑worth individuals enter countries via investment migration programs.
The countries gaining millionaires — and why
In 2020, the USA, Japan, Germany, and China were the four countries with the highest number of high‑net‑worth individuals, accounting for 62.9% of the global high‑net‑worth population. The fifth country on the list, France, saw its high‑net‑worth population grow by only 1.7%.
The most impressive leap of 2020 is surely that of Iran, where, despite renewed international sanctions, the high-net-worth population grew by 21.6%. In 2021, despite a difficult first six months, the Tehran Stock Exchange had strong results in the third quarter. Earlier gains were due to wealthy locals and the government investing in the stock exchange.
South Korea’s stock exchange also performed exceptionally well. In 2020, the country’s stocks were at their highest in more than 10 years thanks to the continuous development of the technology market. This led to its high-net-worth population growing by 11.6% — the largest rise in Asia. This slowed in 2021, but the affluent population is likely to remain significant.
South Korea’s neighbor, Hong Kong, enjoyed a political respite in late 2020, whereas Taiwan benefited from soaring exports and significant increases in electronic component sales, partially due to work‑from‑home trends. As a result, Hong Kong and Taiwan saw their millionaire populations increase in 2020 by 9.6% and 9.5%, respectively. These countries have also been relatively successful in curtailing the pandemic compared to the global average.
Sweden is another country that initially minimized the impact of Covid-19 on its economy. It did not resort to lockdowns, and therefore its economy was not shut down, although Omicron saw tighter restrictions in early 2022. The country has a strong real estate market, attracting investments in data centers, and industrial and logistics properties. The combination of these factors led Sweden’s millionaire population to grow by 11.1% in 2020, the largest increase in Europe.
With the Toronto Stock Exchange having plunged until November 2020, Canada could have expected to see a wealth exodus. However, because of the remarkable performance of its information technology sector, the exchange closed the year with a 2.2% gain, allowing its high‑net‑worth population to grow by 2.9%. Although this is a slower increase than in 2019, it is superior to that of other developed economies. Nonetheless, this result must be analyzed in the context of the Canadian dollar having markedly appreciated against the US dollar. The Canadian dollar is not the only currency that gained value in 2020 — the appreciation of the euro also sheds light on the high‑net‑worth population growth of the Netherlands and Italy. However, both currencies continued to perform well in 2021 and they are expected to keep strengthening against the US dollar, indicating a trend from which other Eurozone countries and Canada might keep benefiting in the future.
The full consequences of the Covid-19 crisis are yet to be revealed and we have very limited visibility, if any, as to when life will return to what was considered normal only two years ago. However, it is predicted that in 2025, the world’s high-net-worth population will reach 84 million, a leap of almost one third from 2020. The investment migration trends driven by the Covid‑19 situation predict that this population growth will occur in all regions. In addition, some studies have anticipated that most of the high‑net‑worth population will concentrate in the same countries as in 2020, with a few notable exceptions. Germany, currently home to the third largest high‑net‑worth population worldwide, might give way to China, France, and Canada as the top three, and might find Australia on its heels. Indeed, Australia and neighboring New Zealand have rapidly gained in popularity in recent years, and this tendency is growing rather than easing. The two Oceanian countries capitalize on excellent business and security conditions as well as their high‑performing healthcare systems. On a larger scale, the growth rate of South America’s millionaire community, although expected to reach 68% in the same period, is likely to be surpassed by that of Africa, which is anticipated to surge by 75%.
The importance of attracting millionaires
The increasing outflow of millionaires is often a sign of a drop in confidence in a country, since high- and ultra-high-net-worth individuals have the means to leave and are thus the first to exit when circumstances change. Along with their families, millionaires also bring to their host countries their wealth and the taxes they pay. The loss of millionaires can be detrimental to the local economies and property markets of the countries they leave behind. In some cases, these individuals relocate their businesses — and the jobs the businesses generate — as well as their skills, qualifications, and influence. Therefore, while millionaires reflect only a small percentage of a country’s population, attracting, producing, and retaining them is an important endeavor for any country. There is no doubt that the pandemic has accelerated the competition among countries to draw wealth and talent. In this environment, some have had to innovate. That is the case with New Zealand, where, in May 2021, the government took steps to facilitate the immigration of millionaires and highly qualified individuals, hoping that by doing so the country would gain financial and strategic advantages over other nations. In the not‑too‑distant future, when crises such as the current one may come one after another and have lasting effects on societies, strategies of this sort might prove vital.
This essay was first published in the Global Citizenship Program Index 2022.
Dr. Juerg Steffen is the Chief Executive Officer of Henley & Partners. He has more than 30 years’ experience in the financial services industry and is widely regarded as a leader of the investment migration industry. After joining Henley & Partners in 2013 to set up the firm’s Singapore office, Dr. Steffen went on to establish Henley & Partners as a key player in what has become one of the industry’s key regions. Later appointed Chief Operating Officer of the group, he has played a pivotal role in growing the firm and, indeed, the investment migration industry at large, improving Henley & Partners’ operational standing and developing key structures and processes that enable the firm to keep the industry-leading position it enjoys today.
Before joining Henley & Partners, Dr. Steffen was a personal advisor in the family office of one of Europe’s wealthiest families. Prior roles include serving as a member of the management board and head of the Wealth Planning department of a leading private bank in Austria. He has also been a Director in the Cross-Border Wealth Planning department of UBS in Zurich, where he advised high‑net‑worth individuals and key clients in complex matters regarding financial, tax, succession, and residence and citizenship planning. He has also established and developed a private bank operation for one of the leading banks in Switzerland and is the editor of the definitive books on high‑net‑worth relocation to Austria and Switzerland.