Investing in Africa: Not As Crazy As It Sounds?
If American business thinks of Africa at all, it's usually as a tax write-off generating charity case. That's a mistake writes Thomas Kostigen on MarketWatch.com in response to a new report by investment consultant RogersCasey. Africa, according to Kostigen and RogersCasey, offers ethically responsible investment opportunities with attractive risk-adjusted returns.
Kostigen acknowledges that this could be a hard sell but offers three reasons to consider looking into Africa.
First off, America is falling behind the competition when it comes to investing in the continent. China, India, Russia and much of the Islamic world are already there. In July, for example, Beijing used $US5 billion from its reserves to form the Africa Development Fund to develop the continent's oil and mineral resources.
Investment opportunities in Africa are often hard assets which is why powerful eastern economies are looking there. Kostigen notes that "the U.S. and the West are betting on leverage and exotic financial instruments when much of the East is reluctant to do that. China, for example, announced that $200 billion of its reserves will go into real assets." Looking at the turmoil in the markets this week, one wonders if China isn't on to something when it comes to weighing up the relative risk of politically unstable Africa versus intangible, complex financial securities and derivatives.
Second, investments in Africa are a steal. The RobertsCasey report says,
"It can be argued that Africa, as a whole, is the last undervalued marketplace. With its obvious wealth in natural resources and farmlands, an Africa without bloodshed and disease could be a superior source of commodities for the foreseeable future. These markets, with the exception of South Africa, now sell at bargain basement prices"Which, could actually make investors a little queasy. Isn't it exploitative to invest in such under-valued, under-regulated markets? Well, yes, it's far from perfect Kostigen concedes, but he goes on to argue, using the words of a noted economist, that "the only thing worse than being exploited by capitalists is not being exploited by capitalists." The last reason then to look to Africa is that investment, rather than charity, is more likely to lift Africa out of its troubles and poverty in the long term. As long as American firms mind their ethics, doing business in Africa could be good for both Americans and Africans.
For forward thinking business people with a high tolerance for risk and desire for true diversification, Africa is worth a cautious look.
(Image of oil rig in Nigeria by we-make-money-not-art, CC 2.0)