Economy

It takes Sh2.2m to join richest 1pc of Kenyans

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Nairobi City Skyline. FILE PHOTO | NMG

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Summary

  • The threshold means that the country’s most affluent class is packed with prosperous professionals and entrepreneurs.
  • With a Sh2.2 million threshold out of reach of most Kenyans, it also demonstrates the country’s relatively higher poverty levels and reflects Kenya’s wealth inequality.
  • Sh2.2 million can only secure a small plot of land in Nairobi’s outskirts, with the cheapest apartments in the capital city starting from Sh3 million.
  • The study describes wealth as the net assets of a person that includes property, cash, equities, business interests less any liabilities like loans.

It now takes a net worth of $20,000 (Sh2.2 million) to break into the population of Kenya’s top one percent by wealth, according to the latest Knight Frank Wealth Report.

The threshold means that the country’s most affluent class is packed with prosperous professionals and entrepreneurs.

With a Sh2.2 million threshold out of reach of most Kenyans, it also demonstrates the country’s relatively higher poverty levels and reflects Kenya’s wealth inequality.

That amount of money is inadequate to afford a family a middle-class lifestyle in the major cities like Nairobi which is traditionally associated with home ownership and consumption of private education and transport, among other services.

Sh2.2 million can only secure a small plot of land in Nairobi’s outskirts, with the cheapest apartments in the capital city starting from Sh3 million.

The study describes wealth as the net assets of a person that includes property, cash, equities, business interests less any liabilities like loans.

The concentration of wealth in the hands of a few people has partly been attributed to the previous centralised system of government, which guided sharing of resources since Independence.

The devolved system of government, which took off in 2013, raised hopes of addressing the economic imbalance, as analysts say there is a need to offer incentives to attract private investors to counties and spread wealth.

Knight Frank says that one needs $180,000 (Sh19.7 million) to join the top one percent in South Africa, nine times Kenya’s admission price.

That money is enough to buy a two or three-bedroom apartment or standalone house in parts of Johannesburg, according to property listings.

Nigeria is second on the continent with a $70,000 (Sh7.6 million) or 3.5 times higher than Kenya’s level. That money can buy a two-bedroom apartment in parts of Lagos, Nigeria’s largest city.

In contrast, the top one percent of the developed world are able to indulge in all manner of luxury associated with the elite.

Monaco, a favourite playground for the super-rich, has the highest admission price to the one percent of $7.9 million (Sh867 million) which is enough to buy multiple luxury apartments and cars in the city-state.

A similar level of consumption in Kenya’s capital is likely to cost more than $455,000 (Sh50 million) or nearly 23 times the stated price for admission to the country’s top one percent club.

“Developing economies Indonesia and Kenya have thresholds that are below one percent of the level of Monaco at $60,000 (Sh6.5 million) and $20,000 (Sh2.2 million) respectively,” the report says.

Switzerland, famous for its role as a warehouse of the global elite’s wealth, is second with a threshold of $5.1 million (Sh559 million). The United States is third with an entry level of $4.4 million (Sh483 million).

Official data shows that entrepreneurs and high-income earners have the highest chance of joining Kenya’s exclusive wealth club, with the majority of citizens either unemployed or trapped in low-paying jobs.

Nearly three quarters of the country’s formal sector workers earn below Sh50,000, according to data from the Kenya National Bureau of Statistics (KNBS).

This paints a picture of major inequality that has gotten worse after the Covid-19 pandemic led to the loss of more than one million jobs and pay cuts for most of those who managed to remain in the labour force.

There are also significant inequalities even within the top one percent which includes everyone with a net worth of Sh2.2 million and multi-billionaires with annual incomes running into hundreds of millions of shillings.

The report says that the category comprises 90 Kenyans with a net-worth of at least $30 million (Sh3.3 billion), including their primary residence.

These are almost exclusively entrepreneurs owning multiple companies and assets in the local market and abroad.

There are also 3,323 Kenyans here with net assets of at least $1 million (Sh109 million) including their primary home. These are mostly owners of medium-sized firms and highly-paid professionals like executives.

Knight Frank says that a growing inequality is a major challenge for the super-rich, countries and governments, with higher taxes on the wealthy seen as a way to reduce the imbalance around the world.

“Wealth inequality has become starker within countries and globally, particularly as a result of the Covid-19 pandemic, and this is likely to become a point of growing contention,” the property consultancy says in the report.

Knight Frank says more wealth taxes could be introduced as governments scramble to cover the huge costs of the pandemic, adding that targeting the wealthy tends to be popular with voters.

The Kenyan government has identified the introduction of wealth taxes as part of its post-pandemic economic recovery strategy but is yet to pull the trigger.

The shape of the planned increased taxation of wealthy individuals is not clear but the government in 2018 sponsored a Draft Income Tax Bill that sought to impose a higher maximum tax rate of 35 percent on income of more than Sh9 million per annum or Sh750,000 a month.

Delay in introducing the wealth taxes is likely the result of lobbying by the elite including the political class.

Recent tweaks to the income taxes largely removed pandemic-inspired reliefs and took the levies back to where they were before, with no special taxes on the highest income earners.

Seven percent of Africa’s high-net-worth individuals who participated in the Knight Frank survey said the impact of wealth inequality is one of their top worries this year.