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 manufacturing in Germany, the US, China, Turkey, Canada and Russia.

After many years being a weak contributor to economic growth, manufacturing can now play a critical part in the solution of many problems caused by the financial services sector. A competitive manufacturing sector is seen to contribute to a long-term country’s prosperity through the creation of new skilled jobs and significant revenues from exports and investments.

However, the global manufacturing industry is in a state of transition. The emerging economies are growing and leading to competition among countries, while the advanced economies are still slowly recovering. The lower wage countries tend to compete on costs, while the established players differentiate on technology and innovation, transforming the sector and focusing on high value-added products in industries like aerospace and pharmaceuticals.

Specifically, manufacturing is suffering from an absolute contraction and flattening demand both in the US and abroad. The US manufacturing report released in May by the Institute for Supply Management (ISM) showed a contraction of 49% in the Purchasing Managers Index (PMI), the lowest and worst hit since June 2009.

The Eurozone is also showing no signs of recovery within its manufacturing activity shrinking for the 21st consecutive month, due to a more active demand from the US and China and deterioration of exports.

In this general outlook, China might become the leading manufacturer by 2020 thanks to its fast growing economy and low labour costs. Reports by global wealth consultancy WealthInsight have shown that the highest wealth generated from the manufacturing industry is in China, with Germany and the US remaining on top for the number of UHNWIs generated by the sector.

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Although nowadays manufacturing is one of the leading contributors to the national wealth in most economies, it produces relatively fewer HNWIs.

Key figures
16,800,000 HNWIs, or 8.5% of the total global high net worth population, are involved in the manufacturing sector.

Key geographies
Countries with cheap labour costs, high- skilled workers, advanced technology and good infrastructures are a hub for investors in the sector.

-In the past, Germany was listed among the top manufacturing countries, with national revenues going up to $670bn. Now the country is facing a fall in the sector, a victim of the slowdown across the Eurozone. Manufacturing (including automotive) and retail & fashion are the two main industries in which UHNWIs have accumulated their wealth, serving as the source of wealth for 19.5% and 15.5% of UHNWIs, respectively.
UHNWIs who acquired their wealth in manufacturing – the most important sector for UHNWI wealth creation – were more severely impacted by the global financial crisis. However, this is still above the overall growth in the number of Germany’s UHNWIs of 0.7% over the period. The sector accounts for 3.7% of the country’s GDP.

-In the USA manufacturing is the largest domestic sector, accounting for 12.3% of local GDP in 2011. It is the primary source of wealth for 15.9% of US UHNWIs, representing 6,248 individuals. The top HNWIs states for manufacturing are Florida (19.9%), Illinois (19.3%) and Texas (15.4%). However, the recent national manufacturing ISM released in May, reported the third consecutive decline in the PMI. This suggests a forthcoming contraction in the manufacturing production and further fall in US GDP. Unsurprisingly, the emergence of China as the dominant worldwide trading power could place significant pressure on US competitiveness.

–China is known as a ‘global factory’, and many people benefit financially from the country’s labour-intensive and low cost manufacturing industry. The majority of Chinese HNWIs are self-made and come from manufacturing backgrounds. However, by 2015 the economic structure will have changed and 25% of Chinese HNWIs will have generated their wealth from technology and software, and only 13% will have generated their wealth from manufacturing. According to the latest WealthInsight’s reports, 10.4% of Chinese UHNWIs’ wealth is generated by this sector. WealthInsight also reports that the number of UHNWIs is expected to increase substantially by over 12% to 2015.

-In the newly industrialised Turkish economy, manufacturing represents the largest sector, accounting for 16% of the economy and over a fifth of employment. Strong growth in consumption and manufacturing drove the economy in 2011. The sector grew by an average of 4.3% in the past five years, rebounding strongly from a 7.2% contraction during the 2009 recession. About 7% of Turkish HNWIs’ wealth derives from manufacturing. The sector consistently provided the biggest contribution to gross value added over the last ten years. Key industries include household electronics and textiles production.

-Manufacturing in Canada is the second biggest sector accounting for 12.8% of GDP. After falling into recession in 2009, the country grew at 3.2% in 2010 and 2.5% in 2011. Manufacturing generates 6.1% of Canadian HNWIs. Canada’s manufacturing growth expanded at its fastest pace in nearly a year in May, with more job creation and further growth expectations. Rising exports helped revive the economy during the first quarter of 2013 following a very slow second half of 2012. The regions of Ontario and Quebec account for more than half and just under a quarter of Canada’s manufacturing output.
Over the 2007-2011 review period, the number of HNWIs benefitting from investments in manufacturing significantly increased to 11%.

-In Russia, manufacturing is the second-largest sector and constitutes 13% of GDP.
The country’s major export partners are the EU (49%), China (5.7%), Turkey (4.3%) and the Ukraine (4.0%). Within the EU, the Netherlands, Italy and Germany are the three-largest contributors. Manufactured goods represent 18.5% of Russia major exports. Despite being the second-largest sector in the economy by GDP contribution, manufacturing only accounted for 4.6% of Russian UHNWIs in 2011.

For more detailed reports on the countries featured above click here.

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