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Time to Invest in a State Sponsor of Terrorism
Feel like investing in a state sponsor of terrorism? How about a country whose leaders have stolen $400 billion in the last decade and have seen 300 foreign workers kidnapped? Another country lost four wars in the last 40 years. Still interested? How about a country that suffers one of the world’s highest AIDs rates, endures regular insurrections where all of the westerners get massacred, and racked up 5 million dead in a continuous civil war?
Then Africa is the place for you, the world’s largest source of gold, diamonds, chocolate, and cobalt! The countries above are Libya, Nigeria, Egypt, and the Congo. Below the radar of the investment community since the colonial days, the Dark Continent has recently been attracting the attention of large hedge funds and private equity firms.
Goldman Sachs has set up Emerging Capital Partners, which has already invested $1.6 billion there. China sees the writing on the wall, and has launched a latter day colonization effort, taking a 20% equity stake in South Africa’s Standard Bank, the largest on the continent.
In fact, foreign direct investment last year jumped from $53 billion to $61 billion, while cross border M & A leapt from $10.2 billion to $26.3 billion. The angle here is that all of the terrible headlines above are in the price, that prices are very low, and the perceived risk is much greater than actual risk.
Price earnings multiples are low single digits, cash flows are huge, and returns of capital within two years are not unheard of. These numbers remind me of those found in Japan during the fifties, right after it lost WWII.
The reality is that Africa’s 900 million have unlimited demand for almost everything, and there is scant supply, with many firms enjoying local monopolies. The big plays are your classic early emerging market targets, like banking, telecommunications, electric power, and other infrastructure.
For example, in the last decade, the number of telephones has soared from 350,000 to 10 million. It’s like the early days of investing in China in the seventies, when the adventurous only played when they could double their money in two years, because the risks were so high.
This is definitely not for day traders. If you are willing to give up a lot of short term liquidity for a high long term return, then look at the Market Vectors Africa Index ETF (AFK), which has rocketed by 94% from the March lows to the recent highs, and the SPDR S&P Emerging Middle East & Africa ETF (GAF), which reeled in a blistering 103% gain.
For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily, or listen to me on Hedge Fund Radio at http://www.madhedgefundtrader.biz/ .
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The US govt is a state sponsor of terrorism, selling arms to all terrorist states, being involved in 911, losing the war in Iraq, Afganistan, and Vietnam and stealing trillions of tax dollars of it scitizens and transferring them to rich bankers and band.
What do you smoke that you cannot see this...
The US govt is a state sponsor of terrorism, selling arms to all terrorist states, being involved in 911, losing the war in Iraq, Afganistan, and Vietnam and stealing trillions of tax dollars of its citizens and transferring them to rich bankers and banks.
What do you smoke that you cannot see this...
Africa is heartbreaking! Watch the ETF, and avoid corrupt charities.
Loan capital to African women business. Go KIVA!
investing in Africa is not an easy thing nor is it for the faint hearted. i have found that people who do not know or understand Africa don't really truly realize the extreme levels of diversity that exist, even within a country. this should be kept in mind when engaging in investment.
Well as long as I can go to New York and say that's what america is all about or go to California and say hey everyone is like this in the USA then I agree with you. Nothing like oversimplifying complicated things and complicating simple things. Great way to get a big picture without actually doing the work involved with getting a big picture.
investing in Africa is not an easy thing nor is it for the faint hearted. i have found that people who do not know or understand Africa don't really truly realize the extreme levels of diversity that exist, even within a country. this should be kept in mind when engaging in investment.
I'd say South America fits the profile more but with less crazy shit.
I spent a few years in Africa in the 80s, mostly in the Horn, but a few months in the Sahel. It's definitely a fascinating place, but I don't know that I'd put my money there. With the financial system breaking up, it's hard to see how Africa can find stability.
I started working in the engineering and environmental fields in the early 80's. Worked in Africa in the 90's with a mentor that remains convinced that Africa is the land of next opportunity. Will go back for sure.
CFAO - even dictators need cars.
Is that not a french company?
Best thing we did for those poor folks was bringing them here. Send them a couple billion in aid and they are still starving and killing each other. Bring them here and after a couple generations at least they're not starving.
All the smart homoerectus got out a million years ago, very inhospitable place.
wow.
I've spent months in west africa (including morocco) and east africa. I don't trust those people to clean my room without stealing something, take me to the right place or serve me what I ordered, much less spend capital effectively and honestly. Truth is, the chinese are dumping all their cheap crap on africa and even shutting down businesses and relocating them to china.
typical bait and switch, first you say country, then you mention several countries, of dubious reputation, and then you throw in South Africa for good measure? but maybe you forgot about China's investment in Sudan? does anyone remember Darfur?
There is already an etf on South Africa, EZA, large gold reserves, stable politically, socially, etc..
Hey, why not? After all, Zimbabwe has mastered the art of money-printing, and look what miracles it's done for them. And if the USA is starting to copy them, it must be because they're doing something right ... right?
Let the big money go there. I am not in a position to really fuck up the economy, culture, and people to the extent required in order to generate sufficient return. The foreign direct investors, uncluding shadow bankers, have better contacts to bribe the rulers and can more easily facilitate their moving 'investment' proceeds out of the 'developing' countries, for a sweet little fee, or course.
Quite a "Foolish" idea, overall.
Africa really can't be fucked up any further. Most of Africa really has nowhere to go but up.
More direct investment in African infrastructure can only be a good thing. With any luck, Goldman's investments there will actually put capital to work directly in Africa and help the people of that continent pull themselves out of their historical condition.
Famous last words, "Couldn't get any worse"
Most of Africa is still controlled by dictators, zealots and madmen. Let's see how South Africa fairs during the World Cup in June and July in the eyes of the world.
Yes, there are a lot of natural resources to be had but a lot of blood has been and will be spilt trying to control them.
S. Africa is such a sad story. From Apartheid to genuine hope under Mandela, and now slipping into what looks like just another corrupt and despotic African dictatorship.
Exactly. The next Zimbabwe.
Traded spears and bows for AK47's.
true, but what about Usa,,,, by whom do you think is being controlled boy ?