the higher the level of wealth, the more willingly will wealth-holders seek the gains of lower risk through diversification at the price of lower returns

the higher is wealth per capita, the lower (other things being equal) will be the return on capital, hence the stronger the incentive to seek investment opportunities elsewhere.

East Asia now has a very high level of capital per worker of around $14,200. By contrast, Africa has only some $2,000 per worker. It follows, other things being equal, that Africa's wealthy would want to hold more of their wealth within their own continent than would East Asia's. Indeed, our analysis predicts that had other things been equal, Africans would have held some 11 percentage points of their portfolios less than East Asians outside their home continent, instead of the prevailing 33 points more. The facts as they stand show that things have been very far from equal. Other factors are at work.

The Institutional Investor risk ratings are both highly significant and powerful in influencing the proportion of the portfolio held abroad. The risk ratings are compiled by polling developed country bankers and investors on their opinions. The risk ratings are almost certainly significant not because investors take note of them, but because the ratings capture the widely held perceptions of the investment community. To an extent, these opinions will reflect actual risks facing investors. Ratings are on a scale of 0 (very risky) to 100 (safe). The bottom edge of the NICs (newly industrialising countries like Indonesia or Thailand) is around 45 but the African average is around 22. In our analysis a one-point improvement in the risk ratings reduces the proportion of the portfolio held abroad by around 0.5 percentage points. Hence were Africa to be rated at the bottom of the NICs instead of its present much worse rating, Africans would bring about 11% of their total portfolio back home.