“From here in Africa, we sailed with ivory, mangrove, coconuts, tortoise and cowrie shells,” says an old sailor named Bwama Shafi in a dusty, old issue of National Geographic. “From Arabia, we brought dates, whale oil, carpets and incense. From India, pots, glassware and cloth. Trade was our life, you see.

“The wind in our sails made us rich,” the old seadog explained, “just as it did our ancestors. In the season, dozens of foreign dhows would arrive — booms 100 feet long or more, great sails white against the sky. And at night! Hundreds of dhows big and small anchored in the harbor, their cooking fires shining like stars in the night.”

Africa had good harbors and plentiful fish and lots to trade with India and Arabia. Ties between India and Africa, especially, strengthened under the common influence of Islam and the Portuguese. (Portugal colonized both Goa and Africa’s coast.) Africa is also home to a large population of ethnic Indians, which helps bridge trade further.

These historical ties and old trade routes are reviving once again. In the spring, Delhi hosted the first Indian-African summit. Trade between India and Africa tops $25 billion per year. Nigeria, for example, accounts for 10% of India’s crude oil imports. But China’s trade with Africa is a lot more — $55 billion annually. The reason for this boom in trade? A hunger for the natural resources of Africa.

Africa increasingly is right in the middle of the global quest for natural resources. It has the highest ratio of light and sweet crude in the world — the best-quality stuff you can find. And most of its oil — some 83% — comes from large fields that produce at least 100 million barrels per day. Meaningful amounts of premium oil in large fields explains why Africa attracts so much investment. Between 2002-2006, the big oil companies tripled their spending in Africa.

The recent discovery of oil sands in the Congo by Eni, a big Italian oil group, lends more credence to the idea of Africa as the future of global oil supply. Eni hasn’t said how much resource its vast acreage might hold. But the Financial Times reports early samples suggest that “the area as a whole could hold more oil than Eni’s entire reserves of seven billion barrels of oil equivalent.” That would put Eni’s resource on par with the huge Kashagan field in Kazakhstan. Eni potentially doubled its oil reserves with this one African find.

Right now, Africa produces only about 12% of the world’s oil output. By 2012, that could be 30%. No wonder, then, that it has become such a competitive battleground for the oil companies. In a recent auction, India’s state oil company bid $321 million for an Angolan oil block. A Chinese oil giant bid $725 million. Guess who won?

It’s not just about oil, either. Africa holds tremendous amounts of natural gas, minerals and natural resources of all kinds. Much of these resources reside in places that are business-friendly. But there is often a fragile social fabric, which seems ever on the brink of civil war or a coup, or worse.

In Niger, for example, you will find some of the world’s largest deposits of uranium. Niger plans to double its output over the next several years.

Companies from all over the world — Australia, Canada, China, India and France — scramble to lock down claims. But the uranium deposits lie in the ancestral home of the nomadic Tuareg. The Blue Men of the Desert (so-called due to the color of their favored indigo dyes) return to old ceremonial grounds to find red flags marking uranium deposits. The result is predictable — battles between the Niger army and Tuareg fighters, and bloodshed.

Yet the rewards dangling before the world’s eyes are so great. Many companies will walk the edge of that precipice for a shot at glory. Many of the companies I have recommended to the readers of my investment letter, Capital & Crisis, operate in Africa.

Ryszard Kapuscinski, the late journalist, once wrote that Africa was too large to describe. Africa was “a veritable ocean, a separate planet, a varied, immensely rich cosmos” (The Heat of the Serengeti Plain, 1962). “Only with the greatest simplification,” he wrote, “can we say ‘Africa.’ In reality, except as a geographic appellation, Africa does not exist.”

Scio-economically, Africa remains as “non-existent” today as it did when Kapuscinski penned these words in 1962. But when it comes to natural resources, Africa not only exists, it occupies the center of the map.

Sincerely,
Chris Mayer
August 28, 2008

Investing in Africa was originally featured in the Penny Sleuth.

Mark Mobius is a true investment maverick. He manages $22 billion at Franklin Templeton Investments, he has a Ph.D. from MIT and is a globetrotting investment hunter. He could be in Estonia one day, interviewing technology companies, and in China the next day to check out a steel plant. Mobius doesn’t own a house because he is “on the field” all the time — he travels the world almost 365 days a year and combats constant jet lag with melatonin tablets.

All that traveling and stock-scouting has paid handsomely for investors of the Templeton Developing Markets Fund. Since 2002, the fund returned a cool 149%. How does Mobius achieve such fabulous gains for his investors? By putting their money where no one else will.

Let me explain…

Mobius likes to invest in countries and regions nobody else is looking at. “I don’t pay all that much attention to hot stocks, or hot markets, preferring to leave them to the hotshots,” he said.

So in 1998, when the Russian stock market lost 50%, making it the worst performing stock market in the world, and when the neighboring Baltic markets took a beating as a result, Mobius plunged right in. And that investment alone would have yielded 333.4% gains today. And that is the power of investing where nobody else will.

Africa’s Investment Possibilities: Africa’s Potential

Inspired by Mobius’ philosophy and market-crushing returns, I set out to find similar investments. I wanted to find undiscovered countries and regions with tremendous growth potential.

And that’s what led me to Ambassador Joseph Huggins — former U.S. Ambassador to Botswana and senior advisor at the Corporate Council on Africa. After a few e-mails, I set up an appointment to meet him. I parked a few blocks from his 17th Street office in Washington, D.C., and walked in. As I took the elevator to the 11th floor, three men in expensive suits ran in.

“It’s a fabulous, fabulous property. I’m sure you’ll love it,” said one of the men to the others. He was a real estate agent. And his sales pitch seemed to be working. The other two men furiously nodded in agreement when the agent proclaimed that real estate in the United States was one of the “fastest-growing investments anywhere in the world.” The elevator stopped on the sixth floor. “This way please,” said the real estate agent, leading his clients out of the elevator rather ceremoniously.

Interestingly, I was about to find out about a truly fast-growing AND undiscovered investment from one of the wisest men in America’s Foreign Service. And he had nothing to sell me.

The Corporate Council on Africa office seemed like a whole different world. A beautiful Ethiopian woman greeted me and I sat down in front of a coffee table piled with books about Angola, Morocco and other exotic lands. To the side was a curious little artifact — a little wooden zebra drinking from what looked like a coconut shell.

As I was taking in the mysterious art in the office, Ambassador Huggins walked in. There was a Yoda-like wisdom about him — calm, collected and reassuring. And smart, he was.

Having served in several African embassies, he spoke with an intense and genuine passion for the region. He told me about coal bed methane discoveries in the desert, a thriving beef export industry, telecom and many other opportunities in Africa.

Africa’s Investment Possibilities: Facts about Africa Nobody Knows

Just consider this:

- The Ghana Stock Exchange is one of the world’s highest performing stock markets. The market raked in nearly 154% gains in the last two years alone. And in 2003, it was THE highest performing market

- According to The United Nations Conference on Trade and Development (UNCTAD), since 1990, the rate of return in Africa has averaged 29%. Since 1991, it has been higher than in any other region, including developed countries as a group, and in many years by a factor of 2 or more

- Botswana has an A+ sovereign credit rating (compared with China’s A-) and one of the highest per capita government savings rates in the world

- Africa has nearly half the entire world’s diamonds

- South Africa is home to 50% of all the gold in the world.

While the mainstream media focuses only on Africa’s virulent AIDS epidemic, poverty and civil wars, many countries in the continent are attaining record growth and spectacular stock market returns. And NOBODY knows.

This is great news for you as a small cap investor. Because tiny, emerging market stocks behave exactly like small cap stocks! They experience greater momentum and higher returns compared to their larger counterparts.

So, following in the footsteps of Mark Mobius, I intend to uncover Africa’s investment opportunities. I’m headed to Africa in a week and will be meeting with finance ministers and central bank governors, and I’ll be attending a metals and mining conference in Cape Town.

I’m sure to come back with some fresh and unique investment ideas. And I will be telling you how you can safely make Mobius-like returns, so watch this space.

Regards,

Sala Kannan
January 13, 2008

Africa’s Investment Possibilities: Investing Where No One Else Will was originally featured in the Penny Sleuth.