PBI has drawn on WealthInsight’s research to analyse a specific industry which plays a major part in driving high net worth wealth creation. This month PBI looked at basic materials in South Africa, Australia,China, Indonesia, Russia, Brazil, and England.

The mining industry had seen series of violent strikes over the last two years that cost the industry millions of dollars and dozens of lives.

Most recently, miners in South-Africa organised illegal strikes to renegotiate wage deals. The protests paralysed the country’s mining operations and created substantial losses for their owners. All this suggests that there are significant risks doing business in the basic materials sector. Analysis by global wealth consultancy WealthInsight has shown however that there are substantial rewards associated with these risks.

In a sector such as basic materials that deals with commodities, a low production costs is what makes a company competitive on the market. Countries that feature few regulations regarding the extraction and transportation of raw materials as well as low labour costs attract investors the most.
Although the basic materials sector has experienced the effect of the recession, it continues to be a major actor in the creation of UHNWIs in some countries.

Key Figures:

1,176,000 HNWIs, or 7% of the global high net worth population, are involved in the basic materials sector.

Key geographies: Regions with abundant natural resources and cheap labour cost are a hub for high profile investors implicated in mining.

South-Africa is a major actor in the exportation of raw materials and the basic materials sector represents the primary source of wealth for 11.7% UHNWIs. Their wealth rose by 30%, more than in any other sector, although the mining sector declined by 21% over the past 40 years to represent 5.9% of GDP in 2011. The whole industry accounts for 8.3% of the country’s GDP.

South-Africa Top Billionaires
Name Net Worth (US$bn) Industry Sector City of Residence
Dr. Nicholas Frank Oppenheimer 6.27 Basic Materials Johannesburg / London
Mr. Patrice Tlhopane Motsepe 2.6 Basic Materials Johannesburg
Mr. Desmond Giulio Sacco 1.18 Basic Materials Johannesburg

– Equally, the wealth of Australian UHNWI involved in basic materials rose by 31%, more than in any other sector, but the industry is about to suffer from the Chinese slow down. Currently, basic materials accounts for 11.3% of Australia’s GDP (mining 7.3%).
About 38,360 Australian HNWIS (14%) have established their wealth in the basic materials industry. But the low number of entrepreneurs reflects that UHNWI’s have mostly created their wealth through inheritance and/or earned their wealth in managing high-profile companies. WealthInsight reports that among the SFOs in Australia, 10% of those families have acquired their wealth in basic materials: this is 13 SFOS in total with an average AuM per SFO of $1,830m. But the industry landscape is changing and the sector is being challenged by higher-human-capital sectors such as financial services.

Australia Top Billionaires
Name Net Worth (US$bn) Industry Sector City of Residence
Mrs. Georgina Hope Rinehart 10.47 Basic Materials Perth
Mr. John Andrew Henry Forrest 5.84 Basic Materials Perth
Mr. Anthony Joseph Pratt 1.44 Basic Materials Melbourne
Mr. Christopher Wallin 1.30 Basic Materials Brisbane

– In China, the basic materials industry is one of the two most important sectors in which UHNWIs have accumulated their wealth in the past but WealthInsight forecasts that by 2015, only 13% of the Chinese UHNWI will come from basic materials while 25% will come from technology and software sector. As China’s economy slows, the decline of construction and engineering work in major Chinese cities and a low projected growth in foreign demand for products such as cement, coal, copper and steel will impact the sector for the 2011-2015 period. Wealth Insight’s report on China shows the country is already a less fertile ground to the creation of UHNWIs’ wealth with the number of UHNWIs growing by less than 5% per annum.

China Top Billionaires
Name Net Worth (US$bn) Industry Sector City of Residence
Mr. Shiping Zhang 3.26 Basic Materials Binzhou, China
Mrs. Zhang Yin 3.08 Basic Materials Shaoguan
Mr. Zhongtian Liu 2.7 Basic Materials Liaoning province
Mr. Jianhua Chen 2.45 Basic Materials Wujiang
Mr. Furen Zhou 1.63 Basic Materials Haicheng

– Basic materials in Indonesia remains the most important industry and the first source of wealth for 37% of Indonesia’s UHNWIs, representing over 230 UHNWIs. It is also the primary source of wealth for 52% of Indonesia’s billionaires. As the country was experimenting the highest growth of any major country in the world, the sector literally boomed over the past years: The creation of a new coal mining plant and palm oil companies helped to increase the number of UHNWI’s who acquired their wealth through basic materials by 112% between 2007 and 2011. WealthInsight forecasts a 123% rise in the total number of Indonesian HNWIs by 2016.

Indonesia Top Billionaires
Name Net Worth (US$bn) Industry Sector City of Residence
Mr. Martua Sitorus 2.85 Basic Materials Siantar, North Sumatra
Dato’ Tuck Kwong Low 2.00 Basic Materials Jakarta
Mr. Garibaldi Thohir 1.35 Basic Materials Jakarta

– In Russia, the basic materials industry is the largest-domestic sector with mining accounting for 15% of the country’s GDP and agriculture for 4.7%. The treatment of raw materials and commodities represents the most important industry from which Russia’s UHNWIs have made their wealth with 26.2% of Russia’s UHNWIs involved in the sector. It also is the primary source of wealth for 32% of Russian billionaires. As the country’s oil and gas exportation is an important component of its economy, most of the UHNWIs have diversified their businesses to cover both the mining and energy sector.

Russia Top Billionaires
Name Net Worth (US$bn) Sector City of Residence
Mr. Alexey Alexandrovich Mordashov 15.12 Basic Materials Vologda, Cherepovets
Mr. Roman Arkadyevich Abramovich 13.09 Basic Materials Saratov
Mr. Andrey Igorevich Melnichenko 10.8 Basic Materials Moscow
Mr. Iskander Kahramonovich Makhmudov 8.95 Basic Materials Bukhara, Uzbekistan
Dr. Viktor Filippovich Rashnikov 5.6 Basic Materials Magnitogorsk

– The number of Brazilian UHNWIs who established their wealth through basic materials grew by 50%, which is more than any other major sector. The industry is responsible for the wealth of 10.9% of Brazil’s UHNWIs.

Brazil Top Billionaires
Name Net Worth (US$bn) Sector City of Residence
Mr. Joseph Yacoub Safra 11.85 Basic Materials Sao Paulo
Ms. Dorothea Steinbruch 5.00 Basic Materials Sao Paulo
Mr. Senor Abravanel 2.04 Basic Materials Rio de Janeiro
Mr. Ming Chung Liu 1.00 Basic Materials Hong Kong

– In England, although the wealth of UHNWIs who made their fortunes in basic materials declined by 16% since 2007, the sector still account for 20% of the London Stock Exchange market capitalisation in 2011 while financial services weighted for 22%.

UK Top Billionaires
Name Net Worth (US$bn) Sector City of Residence
Ms. Kirsten Rausing 3.88 Basic Materials London
Mr. Aristotelis Mistakidis 2.80 Basic Materials Switzerland, Zug
Mr. James Arthur Ratcliffe 2.2 Basic Materials Switzerland