Tracking the rich has become a voyeuristic global industry, but it can also provide serious clues about where countries are headed.
When a country begins to fall into economic and political difficulty, wealthy people are often the first to ship their money to safer havens abroad. The rich don’t always emigrate along with their money, but when they do it is an even more telling sign of trouble ahead.
Since 2013, New World Wealth, a research outfit based in South Africa, has been tracking millionaire migrations by culling property records, visa programmes, and intel from services that cater to the wealthy. In a global population of 15 million millionaires, nearly 1,00,000 changed their country of domicile last year.
In most countries it is fair to assume any millionaire exodus is comprised mainly of locals, since the wealthy class is generally dominated by citizens or longtime residents. In 2017, the largest exoduses came out of Turkey, where a stunning 12% of the millionaire population emigrated, and Venezuela. As if on cue, the Turkish lira is now in a free fall. There were also significant migrations out of India under the tightening grip of its tax authorities, and Britain under the cloud of Brexit.
On the flip side, slowing outflows can be a welcome sign, and in 2017 the biggest shift for the better came in that cauldron of anti-rich hostility, France.
Equally surprising was the lack of change in the United States, where the arrival of a billionaire president seemed to neither attract nor repel millionaires. A net total of 9,000 millionaires migrated to the US last year, but they represent a drop in the ocean of 5 million American millionaires. Like so many people, millionaires seemed unsure of America’s direction under a president who offers tax cuts for the rich but presents himself as a populist champion of the working class.
Meanwhile, Britain and France appeared to be trading places as magnets for wealth. For decades the rich had been drawn to Britain by loose regulations and the comforts of London. Until 2016 Britain saw a sizable influx of millionaires every year but the flow suddenly reversed last year, when 3,000 left Britain amid fears that its exit from the European Union will undermine London as a financial capital.
Long seen as the anti-Britain, a place where prying bureaucrats and high taxes scared off the wealthy, France had seen a growing exodus of millionaires. However, it peaked in 2016 with a net outflow of 12,000, and slowed to just 4,000 last year. The most likely reason; the May election of President Emmanuel Macron, who promised a lighter-touch bureaucracy, and lowered wealth and capital gains taxes.
Displaced millionaires will not attract much sympathy, but no country gains by losing its wealthiest residents. Stunningly, despite optimism about its growth prospects, India in 2017 suffered a net loss of 7,000, or 2%, of its millionaire population. That matched the flight from the sanction-battered economy of Russia, and may be driven by the elite’s growing concerns about an official anti-corruption drive and “tax terrorism” – unlimited authority given to tax officials to target the rich.
In the worst cases, bouts of capital flight can gain momentum until the value of the currency collapses, plunging the nation into crisis. Balance of payments records show that 10 of the last 12 major currency crises, dating back to the Mexican peso meltdown of 1994, began when residents started sending money abroad, which was typically two years before the currency collapsed. Often politicians blamed these crises on “evil” foreign speculators, but it was the locals who saw trouble coming first.
Right now, this accounting offers clear evidence of looming financial difficulty in only one major country: Turkey. Early last year, affluent Turks began effectively moving large sums of money out of the country by exchanging their lira bank deposits for dollars and euros. Meanwhile foreigners were still buying Turkish assets. The 12% decline in Turkey’s millionaire population was second only to the 16% decline in the small basket case of Venezuela. Wealthy Turks appear to be fleeing deteriorating financial conditions, high inflation, and President Recep Tayyip Erdogan’s crackdown on critics.
Millionaire migrations can be a positive sign too. Losses for Turkey, India and Russia were gains for safe havens like Canada, Australia and the United Arab Emirates. The glittering emirate of Dubai gained 5,000 millionaires in 2017, boosting its affluent population by 6%, the largest increase in the world.
Locals are also the first to return when conditions begin to improve. Following seven of the last 12 major currency crises, residents started bringing money back earlier than foreigners.
More broadly, politicians might reconsider the tendency to blame capital flight on “immoral” foreigners. The assumption that global money managers are more savvy and quick than provincial locals is not borne out by the historical record. Nor is the assumption that locals are more loyal to the home market than foreigners. Millionaires move money mainly out of self-interest, to find more rewarding or safer havens, not patriotism. Leaders who create the right conditions to keep millionaires home will find that everyone, not just the wealthy, ends up richer for it.
–Courtesy “Times of India”