This page has been archived and commenting is disabled.
On Safari for Trades in South Africa
When I first visited South Africa (EZW) as a journalist in 1979, I was stuffed into the trunk of a car and smuggled into Soweto, a fenced off “township”, so I could write about the appalling living conditions there. Six ANC bodyguards accompanied my every move, as to venture out alone amidst 100,000 oppressed blacks would have been suicidal. The preferred means of execution then was to jam a sharpened bicycle spoke into your lower back and sever your spinal cord.
Bringing along my non-white Japanese wife to the land of apartheid didn’t exactly go down well with the white locals either. There was only one hotel in the country that would accommodate us, the elegant Carlton in Johannesburg, the same one that put up John and Yoko Lennon.
The bottom line: everyone hated us. We were lucky to get out alive. Is those days, when long lines of Afrikaners snaked out of coin dealers selling their krugerrands for $900/ounce, everyone was convinced the country would soon blow up in a gigantic, bloody racial war. You could buy a beautiful four bedroom house there on an acre of land for $25,000, servants included.
It never happened. Everyone collectively looked into the abyss and decided to pull back. The Afrikaners made peace with the ANC, an incredible reconciliation process ensued, and by 2010 the country had healed enough to host the World Cup. It’s all proof that if you live long enough, you see everything.
Now South Africa is popping up on the radars of several big hedge funds as one of a handful of frontier emerging markets ready to make the move to prime time. Of course we already know about world class companies like De Beers, Standard Bank, and Sasol, which give it enough muscle to stand out from the rest of the Dark Continent.
But did you know about alternative energy and venture capital? Local entrepreneurs report that South Africa is among the best countries to start a new company these days, with top rate universities, a plentiful, well educated professional class, a trained work force, generous government subsidies for key industries, and a healthy local market. Despite its well earned reputation as the premier source for the world’s gold and diamonds, 50% of the country’s exports were manufactured goods.
This dynamic mix enabled South Africa’s GDP to hold up well during the financial crisis. Analysts are expecting a 3.3% growth rate this year and acceleration to 5% or more next year.
But this all misses the really big play in EWZ, whose ticket to prosperity will get punched by selling into fast growing markets and a rapidly rising standards of living in the rest of Africa. The entire region has enjoyed accelerating GDP growth rates since 2002. This has been partly fueled by soaring commodity prices where Africa has a lock on the market, such as for cobalt and iridium, crucial elements for advanced electronics and cell phones.
There have been a number of new oil discoveries in Nigeria and Sudan. The Chinese are pouring tens of billions of dollars there into gigantic farms in Africa to feed its own hungry masses. Mass distribution of free anti retrovirals and malaria drugs by the likes of billionaire Bill Gates and the US government has also stopped the AIDS epidemic in its tracks.
The more work I do on Africa generally (AFK), (GAF), the more I like (click here for “Feel Like Investing in a State Sponsor of Terrorism” at http://www.madhedgefundtrader.com/july-30-2010-3.html ). Africa has a population that approaches India and China’s, possibly making it the next cheap labor market. Some 60% of the planet’s remaining uncultivated land is there, which is why China, Libya, and Saudi Arabia have been pouring billions into agriculture there. Africa has 40% of the world’s gold reserves and 10% of its oil reserves, with massive deposits of coal and other key resources.
If you have any doubts, take a look at the direct investment that has been pouring into the banking sector in South Africa in recent years, the most stable and best capitalized industry on the continent. HSBC has gobbled up Ned Bank, Barclays has swallowed ABSA Bank, and China has taken a 20% stake in Standard Bank, probably the best run institution on the continent. Having been a four decade observer of the global financial system, I can tell you from experience that the changing of the guard in the banking system often presages major long term bull markets. You want to follow the smart money here.
Despite all this, only 3% of global direct investment finds there way to Africa. Prices are so low and earnings leverage so great that any dire political risks you can come up with, and there are definitely some out there, have got to already be priced in. It’s just a matter of time before the markets address this imbalance.
Mind you, this is not a country without challenges. The unemployment rate is stuck at a daunting 24.5%, crime is rampant, income disparities are vast, and inter racial strife still percolates under the surface. Pessimists say Armageddon hasn’t been avoided, only postponed. However, when the world’s investors flip back to risk accumulation mode, this is a new country you should consider. High risk can bring in high returns.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
- advertisements -
I am a South African lawyer and investor and have lived here all my life. There are elements of truth in the storey and many of the comments are way out of line unfortunately. My clients are making money from their South African investments and money is pouring into the country as reflected in the strengh of the currency. That said, Africa is not for weaklings and best suited to European and Asian investors who generally have a broader understanding of the continent than Americans in my experiance.
Let me be blunt:
The country is going through a slow motion nationalization of assets.
If you don't mind losing your stake, be my guest.
Your "non-white Japanese wife" ? What does that mean exactly ? Was she different from your white Japanese wife ?
Regarding your claim that the Carlton was the only hotel to accept you, that's just complete B*llsh*t. In 1979, all Chinese/Japanese were accepted as so-called "honorary whites" and you would have had no problems booking into most international-style hotels. And by the way, I know plenty of white SAfricans who visited Soweto during those years (though maybe not after 1983 or so) without too many problems, especially if accompanied by Soweto resident-friends.
Yes, Africa is wonderful, until you get shot at or mugged, or the local militia / government expropriate your "assets". The Chinese are really lambs to the slaughter if they think they are buying any "rights" along with their farmlands and mines.
Once the Chinese buy a million acres and man it with a million armed Chinese workers they will have very little trouble.
The neo-Imperialists.
Wow - all ZH responders must be getting their asses kicked on the ES short side - everyone is so cranky. I have wealthy partners in SA and they say it's no different than the U.S. - leftwing leadership trying to confiscate rightwing assets. (I could have played the race card there but chose not to...) Lighten up!
You really are mad! True to your name. Wandering off in search of another market to kick my ass is not in the game plan. Thanks anyhow.
Are you freaking nuts? I've been in Johanesburg 2 years ago, and the place was a mess!
The entire system is living on reserves from the past. Every business is going away and what's left is being devided like any good communist would do.
Everybody has the right to his part to the money. So, if you got something, be sure some lazy ass will come to collect his part.
Also crime and violence are on such a level, LA looks like heaven!
Rape and murder are so common, it doesn't even makes the newspapers anymore.
The WK was a total flop for them also, they invested their last money in the hope to make is back double. It was the worst WK on financial aspect EVER!
Last time I was there for work, I told my boss: NEVER, EVER EVER, WILL I GO BACK!
The ANC wanted to do good, but is now so corrupt and acts themselves so racist against white people you'd need to be nuts to go there.
TIK TAK said the timebomb...
My family made their fortune in Congo. They had a copper mine that was very profitalbe. When the regime took over in the 60's, my family left. 50 year later, everything is till the same as they left!
They where unable to run the mine without my us.
They sold all the machines, torn everything down and that's it.
The villages that survived on the income from the mine are all gone. People got murdered and the jungle took over.
Let's see - you were stuffed in a trunk - was that with or without your wife? and the 100,000 oppressed Blacks could not discriminate well enough that you and your non-White wife were not oppressors? but they delivered you to the Carlton? You forgot the part about lunch with Nelson Mandela.
When will the MHFT BS ever end?
And now everything is milk and honey in SA. Are you kidding? Go there today and see who's oppressed - hint - its not the Blacks.
Africa = basket case.
As a South African of 60+ years, this is the biggest load of crap I have read about investing in South Africa. The writer must have spent his time here loaded up on one of the local brands of cannabis. Wait till the ANC led government nationalises the mines, the farmlands, and then the banks. Unemployment is closer to 35%. The standards of education and healthcare have dropped dramatically in the last 16 years, while law and order is almost non existent. There are almost 18million people living are social welfare grants supported by just over 5 million taxpayers. Zimbabwe and Venezuela are the ANC's role models.
South Africa is a Zimbabwe (next door neighbour) in process.
BS, MBB. The challenges in SA are numerous, and an investor will be well rewarded. I live in SA and opportunities are numerous: hardly any red tape and enough consumers.
Reminds me of the 2 shoe salesman who went to Africa to investigate. The 1st one said on his return: "forget about it, no market, nobody is wearing shoes". The second one shouted: "Big opportunities in Africa. Nobody is wearing shoes"!
I like ZH for the quality of writers even when I don't agree. In fact, those opposing views are the most important. However, this MHFT is one bullshit piece after another and really affects the image of ZH and brings into question the value of other articles posted here.