Wednesday, September 29, 2010

Wisdom of Seth Klarman

Seth Klarman, of the Baupost Group, is one the greatest investors of all time. Here are some gems from his numerous letters to Baupost investors over the years.

One must understand the importance of an endless drive to get information and seek value.

Literally draw a detailed map—like an organization chart—of interlocking ownership and affiliates, many of which were also publicly traded. So, identifying one stock led him to a dozen other potential investments. To tirelessly pull threads is the lesson that I learned from Mike Price.

Value investing works over a long period of time, outperforming the market by 1 or 2 percent a year, on average—a slender margin in a year, but not slender over the course of time, given the power of compounding.

The inability to hold cash and the pressure to be fully invested at all times meant that when the plug was pulled out of the tub, all boats dropped as the water rushed down the drain.

At the worst possible moment, when your fund is down because cheap things have gotten cheaper, you need to have capital, to have clients who will actually love the phone call and—most of the time, if not all the time—add, rather than subtract, capital.

When managers are afraid of redemptions, they get liquid. We all saw how many managers went from leveraged long in 2007 to huge net cash in 2008, when the right thing to do in terms of value would have been to do the opposite.

We spend a lot of our time focusing on where the misguided selling is, where the redemptions are happening, where the over leverage is being liquidated—and so we are able to see a flow of instruments and securities that are more likely to be mispriced, and that lets us be nimble.

Benjamin Graham wrote, “Those with enterprise haven’t the money, and those with money haven’t the enterprise, to buy stocks when they are cheap.”

Graham’s wonderful sentence as, an investor needs only two things: cash and courage. Having only one of them is not enough.

The prevailing view has been that the market will earn a high rate of return if the holding period is long enough, but entry point is what really matters.

It’s awful to have a depression, but it’s a great thing to have a depression mentality because it means that we are not speculating, we are not living beyond our means, we don’t quit our job to take a big risk because we know we might not get another job. There is something stable about a country, a society built on those values.

A tipping point is invisible, as we just saw in Greece. In most situations, everything appears fine until it’s not fine, until, for example, no one shows up at a Treasury auction.

There is an old saying, “How did you go bankrupt?” And the answer is, “Gradually, and then suddenly.” The impending fiscal crisis in the United States will make its appearance in the same way.

A commodity doesn’t have the same characteristics as a security, characteristics that allow for analysis. Other than a recent sale or appreciation due to inflation, analyzing the current or future worth of a commodity is nearly impossible.

If an asset has cash flow or the likelihood of cash flow in the near term and is not purely dependent on what a future buyer might pay, then it’s an investment. If an asset’s value is totally dependent on the amount a future buyer might pay, then its purchase is speculation.

Investors need to pick their poison: Either make more money when times are good and have a really ugly year every so often, or protect on the downside and don’t be at the party so long when things are good.

My experience is that short sellers do far better analysis than long buyers because they have to. The market is biased upward over time—as the saying goes, stocks are for the long run.

Typically, we make money when we buy things. We count the profits later, but we know we have captured them when we buy the bargain.

Never stop reading. History doesn’t repeat, but it does rhyme.

Jim Grant has a wonderful expression: In science, progress is cumulative, and in finance, progress is cyclical. Fads will come and go, and people will think we are on to a new thing in finance or investing; but the reality is that it is probably not really new, and if we have seen the movie or read the book, maybe we know how it turns out.

The Economics of Call Centers

"Business process outsourcing is the practice of using a third party contracted to perform specific, specialised processes on a company’s behalf, such as payroll functions, human resources and customer call centres.

The government has long pinpointed business process outsourcing as a high-priority sector, especially since its growth could absorb a “large and well-educated labour pool, with over 300 000 new school leavers and 100 000 graduates entering the workforce annually”, the document says.

The call centre subsector grew about 8 percent last year, employing 54000 people.

SA has a big youth unemployment problem, with 2,8-million of its citizens aged 18-24 jobless or in education or training facilities.

SA has made moves to elbow its way into the international tussle for the sector, offering incentives to global giants such as IBM, Fujitsu Siemens, Lufthansa, Virgin, Sykes, Avis, Car Phone Warehouse and Amazon.

They have opened customer-service centres in SA.

According to the department, SA is seen as a preferred location for business process outsourcing as the majority of people speak English, the telecommunications infrastructure is improving and labour is fairly cheap compared with the West."

First Movers Start to Solidify Thier Advantage

Citigroup said on Wednesday it has opened a China desk in South Africa, to support Chinese companies expansion on the continent.

The desk will work with trade and investment flows in and out of China, and help Chinese firms as they expand overseas, the U.S. financial services firm said in a statement.

International banks are increasingly looking to trap trade between Asia and resource-rich Africa. HSBC, Europe's largest lender, is in talks to buy up to 70% of Nedbank, South Africa's fourth-largest lender.

Standard Bank, South Africa's largest bank, is 20% owned by Industrial and Commercial Bank of China.

Citigroup has similar China desks in the United States, Europe, Asia and the Middle East.

Mozambique to Construct Africa's Third Tallest Tower

Mozambique is to build a $115m skyscraper in a bid to attract investors as the country tries to rebuid itself after 18 years of civil war, a company official has said.

The Maputo Business Tower will rise around 190 meters above the southern African country's capital, Armando Archer da Cunha, executive director of Greenpoint Investments, which owns the building, told AFP.

The 47-storey building, which will feature office space shopping area, restaurants and parking, will take 36 months to complete and will eventually be the country's tallest building.

Mozambique has launched a series of huge infrastructure construction projects as the country recovers from a devastating civil war that ended in 1992.

At 223 meters South Africa's Carlton Centre currently is Africa's highest building. Ethiopia's Chuan Hui International Hotel will surpass it with a 264-meter height at completion.

South Africa to Build 5 000 megawatt Solar Park, Go Nuclear

South Africa's energy minister said on Tuesday that the country will seek billions of dollars in investment for a 5 000 megawatt solar park that will help shift the country toward green energy.

Energy Minister Dipuo Peters said South Africa will host an investors' conference on October 28 and 29 in an effort to generate private-sector interest in the project, an effort to begin weaning the country off its energy mainstay, coal.

The conference will be held in the town of Upington in South Africa's Northern Cape province, a flat expanse of arid land that the energy department and the non-profit Clinton Climate Initiative have identified as an ideal spot for solar energy production.

"The conditions in the Northern Cape are ideal for the establishment of a solar park, primarily due to the intense solar radiation in this province," Peters said.

Ira Magaziner, the chairperson of the Clinton Climate Initiative - a clean energy programme sponsored by former US president Bill Clinton's charitable foundation - said South Africa has some of the best conditions in the world for solar power.

"It's probably the best we've seen in the world all around," Magaziner told AFP.

He said besides having some of the best sunshine in the world, the Northern Cape also has the geography and infrastructure to make it a major solar production point.

"There's large amounts of land, and for solar energy you need a lot of land. In the Northern Cape you have vast expanses of land with no alternate use. And also it's near water, the Orange River, so you can use that for the steam in the plants. And then also it's not too far from transmission lines," he said.

"South Africa can become a major force in the world in the export of solar power."

The energy department estimates the project would cost billions of dollars over a decade-long period.

Peters said the government would provide all the infrastructure for the project, then lease out land to private developers who would finance and build individual projects that would sell power to the national grid.

South Africa relies on coal for about 90% of its annual energy production of almost 40 000 megawatts.

The proposed solar park would provide as much power as one coal-fired power station, Peters said.


As much as 50% of South Africa's' new electricity production could be comprised of nuclear energy, national planning commission member Bobby Godsell said on Tuesday.

"Nuclear power is going to be part of the plan," Godsell said at a public discussion in Johannesburg on energy in South Africa.

Between 10 000 and 20 000 megawatts of the 40 000 megawatts the country would need in the future could come from nuclear energy, he said.

Monday, September 27, 2010

Merrill Lynch to Expand in South Africa

Competition from foreign banks in SA is hotting up. Merrill Lynch, which was acquired by Bank of America (BofA) in 2008 during the financial crisis, will make big announcements next month on its expansion and investments in SA.

This will include upgrading its local operations to extend to commercial banking activities. In SA, Merrill Lynch, as a BofA subsidiary, has a securities licence and is a brokerage firm.

But registrar of banks Errol Kruger confirmed this week he has received an application from BofA for a banking licence for a representative office. This means it will be able to lend in SA, but not take deposits.

Merrill Lynch has more than doubled its commitment in SA in terms of credit exposure to US$1,3bn in the past year. It is also spending millions of dollars to beef up its research team and other units it wants to set up. It has already hired 15 people this year to support its expansion and the target is to increase the head count to more than 100.

The expansion is being led by Marcus Heilner, Merrill’s head of global corporate & investment banking for Africa. He sees SA as a launch pad into the rest of Africa and wants BofA Merrill Lynch to be number one among the global banks in SA in terms of investment exposure.

It wants to replicate the Citibank model, which is heavier compared with global giants JP Morgan and Deutsche, which do not do cash management. BofA Merrill Lynch also intends competing with the Big Four, Standard, Absa, FirstRand and Nedbank, in the corporate banking space.

“There is significant opportunity in corporate banking. Corporate banking revenues, for example, were up 100% for the first four months of the year,” Heilner told the FM in June. “We’ve discovered that SA corporates are concerned about concentration of risk with the Big Four SA banks.”

While there are big plans for SA and the rest of Africa, which include expanding product and origination capabilities, the bank’s more immediate target is to have the number one research team in the country. It was the top research house in SA not that long ago, b ut the franchise and research business has suffered. “We haven’t been innovative and provocative enough. We need to get the basics right,” says Heilner. “It’s a no brainer to bring global research and deliver it in a way that is relevant to the thinking in SA.”

From the Financial Mail

High-Speed Rail Expansion in South Africa

The process of testing the market for a high speed rail linking Durban and Johannesburg will start next month, Transport Minister Sbu Ndebele announced on Monday.

"By next month, we will commence with the dual process of concept development and testing the market for a period of six months," said Ndebele at the launch of transport month at Bridge City in Durban.

The construction of a multibillion-rand high-speed rail link between Durban and Johannesburg would cut transport times dramatically.

The department had also identified Johannesburg to Cape Town, and Johannesburg to Musina high-speed rail projects.

Ndebele said his department believed concept development and testing the market for the Johannesburg to Durban rail project would not take more than six months.

He said the project was crucial because the Durban-Gauteng corridor was the busiest in the southern hemisphere, both in value and tonnage.

"It forms South Africa's freight transportation network. It is also vital in facilitating economic growth for the country, region and the African continent." Ndebele was speaking during the official opening of a R350 million underground rail station which would serve 40,000 commuters a day. The station was under the recently opened R750 million Bridge City shopping centre.

Ndebele described rail as the department of transport's pillar to moving to safer roads and reducing road crashes.

"Rail is also a key part of our plans to move both our freight and passengers from road to rail. The strategy does not mean that we are moving towards a country with no cars and roads." Most of South Africa's commuter rail systems had reached the end of their lifespan, Ndebele said.

He said South Africa had invested R40 billion in passenger rail infrastructure and services. This included the R25 billion spent on the Gautrain project, South Africa's first high speed train.

Ndebele said the Passenger Rail Agency of SA (Prasa), which operated the Metrorail commuter service, had also identified the need for recapitalisation of its rolling stock fleet over the next 18 years, at an estimated cost of R95 billion.

Wal-Mart Offers R32bn for Massmart

Wal-Mart Stores Inc. is making a foray into the fast-growing African market with an offer to buy South Africa's Massmart Holdings Ltd. in a deal valued at 32 billion rand ($4.6 billion).

The companies said Monday that the U.S.-based retail giant made a nonbinding proposal that could lead to a cash offer of 148 rand ($21.08) a share for Massmart, which operates several chains in the sub-Saharan region. The companies said they are in exclusive negotiations to try to hammer out a deal.

"It is early days," Massmart Chief Executive Grant Pattison said during a conference call. Executives from the companies first met Friday in London and held talks over the weekend, he said.

Massmart, which was founded in 1990 and listed in Johannesburg in 2000, owns chains such as Game, Builders Warehouse and Makro that have stores across South Africa and in 13 other countries in the region. The company had revenue of 47.55 billion rand in the year through June, up 10% from a year earlier.

Andy Bond, vice president for Walmart's operations in the U.K. and Africa, said South Africa offers a growth opportunity for the company and a platform to expand into other African countries. He said the company would continue Massmart's program to support black economic empowerment in South Africa if a deal is completed.

"This potential combination with a market leader will enable us to add value to an already successful business through investments in people and technology," said Doug McMillon, president and CEO of Walmart International.

News of the proposed takeover helped drive Massmart's shares 10% higher in early trading, giving the company a market value of nearly 30 billion rand


Bidvest Bank to Buy/Sell Yuan

Bidvest Bank has begun buying and selling Chinese yuan notes, a spokesperson said on Monday.

Craig MacFarlane, head of retail operations, said in a statement that demand for Yuan among South African business and leisure travellers had been growing for some time.

Bidvest is the first local bank to deal in yuan notes.

"Local demand for Yuan is already significant and is expected to grow in view of increasing trade and travel links between China and South Africa."

MacFarlane said currency restrictions applied in China and people were only permitted to take into China or bring out a maximum of 20 000 yuan.

"That's about R20 000 as the rate is close to one to one at the moment."

Bidvest Bank is South Africa's leading currency exchange operator.

Saturday, September 25, 2010

Buffett, Jay-Z on Luck

Insight from Warren Buffett and Jay-Z as they talk about luck and chance in their respective careers, with Steve Forbes of Forbes magazine.

Wednesday, September 22, 2010

Charlie Munger at Michigan School of Business

Charlie Munger shares some wonderful insight in this 2 hour talk at the University of Michigan.

To see this video, click here.

Sasol Flies First Synthetic Fuel Plane

Sasol flew the world's first passenger aircraft using the company's own developed and internationally approved fully synthetic jet fuel, it said yesterday.

"The fuel, produced by the Sasol proprietary coal to liquid process, is the world's only fully synthetic jet fuel to have received international approval as a commercial aviation turbine fuel," it said.

The flight went from Johannesburg to Cape Town. Sasol said the approval process was stringent as the fuel had to meet with the strict specifications of global aviation authorities making the country a pioneer in green technology.

Boeing Says African Airlines need $80bn of New Planes

African airlines would need more than 700 new aircraft worth approximately $80 billion (R569bn) over the next 20 years to cope with growing passenger and freight demand in the continent's growing economies, Boeing's senior manager for market analysis, Michael Warner, said yesterday.

He said the African economy was projected to grow by 4.8 percent this year as a result of rising demand for both exports and imports.

"As the demand for African commodities grows and foreign development and tourism increase, African carriers will require a modernised fleet to compete on routes historically dominated by foreign carriers. Africa's current fleet is nearly 20 years old on average in a market that demands newer, more efficient planes to help offset the rising cost of fuel."

Warner said passengers were demanding nonstop flights rather than indirect routes with a change of planes at a hub airport, meaning nonstop routes between Africa and Europe, the US, the Middle East, China and India.

Tuesday, September 21, 2010

Airbus to Spend R4bn in South Africa

French manufacturer Airbus has entered into contracts worth R4bn with three South African component manufacturers.

Simon Ward, deputy head of international operations at Airbus, said just over R500m was for work related to Airbus’s prototype A350 aircraft which was still to be built.

The three companies are Denel Saab Aerostructures (DSA), Aerosud and Cape firm Cobham Satcom.

The three are already involved in manufacturing components for Airbus aircraft such as the A400M macro airlifter.

Some of the companies have been working with Airbus for more than four years and there was great concern about the future of the relationship, after the government last year cancelled Airbus contracts for eight A400M airlifters when cost increases allegedly spiralled out of control.

Ward said South Africa was Airbus’s biggest joint venture partner in Africa.

Airbus is working with only three countries in Africa, namely South Africa, and Tunisia and Morocco in north Africa. South Africa is by far its biggest partner on the continent.

Aerosud, which is situated in Centurion, and DSA in Kempton Park, handle most of the South African manufacturing. Aerosud constructs most of the interior covering of the aircraft’s frame.

Aerosud also manufactures the aircraft’s wingtips and storage racks for electronic equipment in the carrier. Denel is responsible for producing the sections of the airframes above the aircraft, where the front and back of the frame, as well as the wings, meet. This ensures, among other things, even airflow over the aircraft.

Ward said that in many respects South African expertise is unequalled elsewhere in the world.

He suggested this might be because South Africans are innovative.

Ward said for instance that the only welding done on the A400M is done in South Africa.

The South African Air Force had wanted to replace its Hercules C-130carriers with the A400M, but this plan appears to have been put on the backburner.

Didier Vernet of Airbus Military said the A400M programme was back on course following initial delays in the project owing to engine problems.

Today there are already 184 orders for the A400M.

The A400M has a range of 6 110km, which makes any destination in Africa easy to reach.

Vernet declined to disclose the estimated price of the carrier. It varies per contract but one should not focus on the purchase price, he said. Over 30 years the total cost of an A400M, including purchase price and after-sales service, would be far less than any of the other options.

Vernet said the A400M, carrying twice the load of a C130, could fly just as far – or with the same cargo have twice the reach.

Thursday, September 16, 2010

Scrambled in Africa - The Continent's Banking Boom

A piece from The Economist:

"When ICBC, the world’s biggest bank by value, paid $5.5 billion for a 20% stake in Standard Bank in 2007, bankers around the world sat up and took notice. The deal with South Africa’s largest lender suggested Africa was no longer a curiosity but a potentially big source of profits. Some elements of the continent’s vaunted financial blooming have since wilted: Nigeria’s banks, which had briefly seduced Western investors, suffered a crisis (see article). But the main business logic—that Africa’s growing trade links with other emerging markets have raised its strategic importance in banking—is intact.

“Now everyone’s looking at Africa,” says Jacko Maree, Standard Bank’s boss. In January Bank of China, the country’s most international outfit, entered into a pact with Ecobank, which operates in 31 African countries. Chinese staff will drum up business from local branches. In August Brazil’s Bradesco and state-controlled Banco do Brasil announced a new African holding company with Banco Espirito Santo (BES), a Portuguese firm active in Angola. And HSBC is in talks to buy Nedbank, a South African bank. William Mills, who runs Citigroup in Africa, Europe and the Middle East, says the continent is becoming “more and more competitive”.

Direct Link

Calm Heads Prevail

South Africa's finance minister Pravin Gordhan said on Thursday nationalisation of mines is not part of government policy and he does not expect any change of policy on this issue.

Gordhan also told Reuters Insider in an interview that South Africa currently is using reserve building and currency swap operations to control the rand which has surged almost 5% to the dollar this year.

Calls have been made in the country, especially by the powerful trade unions, to tame the currency via a capital inflows tax, but Gordhan said the finance ministry was studying other countries' experiences on this.

"We will study all pros and cons and evaluate," he said.

Naturally the cons far outweigh the pros.

Tuesday, September 14, 2010

How South Africa Ranks - World Economic Forum Global

The World Economic Forum releases an annual report titled "The Global Competitiveness Report". The report ranks countries according to a range of factors and determines using a weighted scale which countries are "most competitive".

There's an Interactive version of the report and a PDF Download.

The Data
The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organizations) in the countries covered by the Report.

South Africa's Ranking

South Africa ranks at number 54 on the index (out of 139). This is notably above Brazil, Russia, Turkey and Mexico. While performing poorly in social measures such as Health and Primary Education, in particular Prevalence and Incidence of HIV/AIDS, there are some striking positives:

South Africa is ranked number 1 under the categories Strength of Auditing and Reporting Standards and Regulation of Securities Exchange.
The country ranks number 2 in terms of Trustworthiness and Confidence and Efficacy of Corporate Boards.
South Africa is in third place in regards Accountability.

Other top ten measures include Protection of Minority Shareholder Interests, Soundness of Banks, Legal Rights Index, Availability of Financial Services, Financing Through Local Equity Market, Strength of Investor Protection and Financial Market Development.

It's amazing that a country like South Africa is ranked the best in the world at auditing, investor protection and legal rights while at the same time recieiving little to no attention from US investors due to mispercieved political and regulatory risks. Clearly such bias is uninformed.

World Economic Forum Link

The Constitution v Media Tribunal


The ANC’s mooted legislative initiative to create a Media Appeals Tribunal is undeniably causing a furore. That is understandable given the historic background of muzzling the media during the apartheid era.

History has shown that authoritarian regimes often come about in a creeping way. Typical indicators are the following: First, the executive tightens its grip over the free flow of information, usually employing the following tools: muzzling a free press; blurring the state goals of national security and public safety and letting national security override the public interest. Second, a too close ideologically-driven symbiosis of the executive and legislature often leads to legitimising an excess of power and curbing of fundamental rights. Finally, the role of prosecutors and the judiciary is marginalised more and more. Weak constitutional systems that tip the balance of power towards parliament or the executive can even enhance the process.

This makes clear why a parity of power between the different branches of state power as well as a vigilant but fair press is the heartbeat of any thriving democracy that cherishes constitutionalism. It is against this backdrop that one should evaluate the Protection of Information Bill that would allow the executive disproportionate scope for classifying information as secret and the envisaged MAT.


The impression one gets is that the proposals about MAT have not adequately taken the constitutional constraints with regard to this endeavour into account. Not only the practicality of such a tribunal is open to question; the constitutionality of such a tribunal within the framework of the prescribed separation of powers is highly problematic. It could also too easily be turned into a censorship instrument.

The quality of a democracy undeniably depends heavily on quality reporting of the press. The positive effect of the debate is that a greater public awareness has been created about the importance of responsible and fair reporting as well as the dangers of censorship. It would seem that the most viable option at this stage is that the self-regulatory system should be improved. More stringent penalties (like fines) have been suggested and furthermore that corrections, retractions, and apologies should be printed more prominently.

By Loammi Wolf - read the full piece here (there are many interesting pieces of information, so I highly recommend a full read).

Monday, September 13, 2010

Sasol: Potentially the Largest Foreign Single Project Investor in China

South African petrochemicals company Sasol expects China’s National Development and Reform Commission to conclude a review of its application to build a 90 000-bl/d coal-to-liquids (CTL) facility in that country soon.

Sasol entered into a 50:50 venture with Shenhua Ningxia to develop the $10-billion project, which is said to be the largest foreign single project direct investment in China and also the country's largest-ever CTL fuels project.

The CTL plant would be Sasol's first CTL investment outside South Africa, where the technology is used to produce about 40% of the country's fuel.

New Funds Flow to African Equity Investments

JOHANNESBURG, Sept 9 (Reuters) - African equity funds have attracted net new cash in 51 of the last year's 52 weeks, EPFR Global said on Thursday, underscoring the evolution of the continent's frontier markets as a serious investment play.

According to the Washington-based fund tracker, a net $660 million flowed into African regional funds over the last 12 months -- not vast sums on the global scale but far more than Africa has ever attracted in the past.

"Through the seven months of this year, the flows into Africa regional funds are already pretty close to four times the previous best year, which was 2007," EPFR global markets analyst Cameron Brandt told Reuters.

The one blip marring what would have been a clear run of 52 weeks of positive net inflows came in mid-July and only amounted to $750,000 of withdrawals.

"The sustained levels of flows have been pretty compelling and impressive because there have certainly been some bumps in the road this year," Brandt said.

EPFR includes North Africa in its definition of Africa, despite a preference by many investors to regard the sub-Saharan region as a whole and lump in the five Mediterranean littoral countries with the Middle East.

Some of the Africa funds surveyed include South Africa, Brandt said, although a cap on exposure to the continent's biggest and most sophisticated economy means the overall figures still give a clear picture of interest in "frontier Africa".

For most foreign portfolio investors, that means primarily Nigeria and Kenya. But it has also started to include the more illiquid markets of Uganda, Ghana, Zambia, Botswana and Zimbabwe, in all of which promising mineral deposits look set to underpin strong economic growth.

The steady flow of foreign cash has helped many African bourses post healthy recoveries from the lows of early 2009 when the full effects of the global slowdown on the continent's economy became apparent and ended the initial burst of enthusiasm for African frontier markets.

Kenya's main stock index .NSE20 is up 42 percent over the last 12 months and 37 percent year-to-date, while Nigeria's .NGSE30 has risen 18 percent this year. Uganda .ALSIUG is up 34 percent since a year ago.

However, the continent's growing appeal has also presented managers of the larger Africa funds with the challenge of finding a home for new money in a relatively limited investment universe dominated by banks and telecommunications firms in Nigeria and Kenya.

Foreign interest in the poorest continent has not stopped at its companies.

As with many emerging markets, domestic sovereign debt in the likes of Nigeria, Kenya, Uganda, Ghana and Zambia is enjoying unprecedented international interest, due in large part to the hefty yields on offer compared to developed-market bonds.

"We've really seen a broad re-rating of emerging markets in a very positive way, to the point where emerging market debt has almost been a flight to safety," Brandt said.

Nigerian Growth: R2bn in Tenders Up For Grabs

South African companies stand to win contracts valued at R2 billion for the new city development in Port Harcourt, the capital of Nigeria's oil producing area.

This massive infrastructural development was outlined to delegates at an investment forum in Durban at the weekend, ahead of the calling for international tenders for the first phase later this month.

The Durban forum was hosted by the Greater Port Harcourt City Development Authority (GPHCDA) and the eThekwini Council, as part of the twinning arrangement, and formed part of a visit to South Africa by Port Harcourt officials to seek out foreign investment for the new city.

Aleruchi Cookey Gam, administrator of the GPHCDA, which is helping to fund the development to the tune of US$2.5 billion, said the project's first phase had passed through the design stage and was now moving to implementation.

Tenders for contracts worth about R2 billion are to be advertised globally within the next few weeks, Gam said.

Dianna Games, Honorary CEO of the SA-Nigeria Chamber of Commerce, said South African companies should not miss opportunities currently on offer in Nigeria, and particularly in Port Harcourt, as the business environment there was improving and competition was increasing rapidly.

Waiting could significantly increase the cost of entry into a populous and potentially very lucrative market, she said.

Games said South African contractors had an excellent opportunity to enter Nigeria through Port Harcourt's new city, but warned that SA was not the only country being courted for investment and services.

South Africa is a key source of investment, contractors, suppliers and services for projects in Nigeria.

The African oil giant is one of SA's biggest trading partners and its biggest investment destination in West Africa.

SA exports to Nigeria increased from R550 million in 1999 to R5.4 billion in 2009 and dozens of South African companies are now operational there.

South African engineering company Arcus Gibb is principal consultant and partner on the new city development in Port Harcourt and has drawn up the master plan.

The new city development will be built alongside the existing Port Harcourt metropolitan area.

Port Harcourt in the Niger Delta is Nigeria's second biggest city after the commercial capital Lagos.

Opportunities in the development's first phase cover the sectors of power; water supply and reticulation; solid waste management; ICT; urban transport, and the construction of housing, commercial offices, industrial parks; and a golf course and clubhouse.

Durban Mayor Obed Mlaba, opening the investment forum, said the coastal city's twinning agreement with Port Harcourt was in line with the South African government's vision to help develop the African continent.

"We believe that unless Africa can develop itself, no one will. And if Africa does not determine what it wants to do, no one else will. Africa cannot be strong if it is not strong in its own back yard."

Durban is currently training 30 officials from Rivers State.

Arcus Gibb executive director Nick Ras said his company regarded Nigeria as a primary growth area and had made a strategic decision to grow its business there.

Trevor Juul, CEO of SA property development company SBT Juul, which is already involved in several major projects in Port Harcourt, said the area offered a return on investment of about 25 percent.

Developments the company is involved in include an airport hotel, a leisure and shopping centre inspired by Montecasino in Johannesburg, and an ICT park.

"We see Rivers State and Port Harcourt as Nigeria's most exciting opportunity," he told the audience of South African service providers, potential investors, property developers and funders.

Foreign Investor Appetite for Tanzania up over 30%

Foreign investors' participation at the Dar es Salaam Stock Exchange (DSE) has risen by over 30 per cent in the last three-months.

According to DSE, the number climbed by 32.38 per cent in July and the trend has remained unchanged until the first week of this month, compared to a mere 1.06 per cent between July and September, last year.

The foreign investors' participation has reduced the local involvement at the bourse trading to 67.62 from 98.94 per cent under the period under review. According to the Head of Corporate and Research with Orbit Securities Company, Mr Fortius Rutabingwa, foreign firms also helped to boost DSE all share index (DSEI).

"Always the movement of the index is due to foreigners trading as local institutions in the recent days and this is also attributed by the fact that they have reduced their participation bid," Mr Ruta said.

Since July, this year, the DSEI surged up from 1,171.15 points to 1,176.86 as of last week trading. The bourse was closed on Friday to enable investors cerebrate the ending of Muslims' fasting month of Ramadhan.

The low trading turnover of local institutions may be explained by local firms' switch their attention to other investments, especially in real estate development such as the construction of Dodoma University and the planned Kigamboni Bridge.

Traditionally, investments by commercial banks trading at DSE as well as the pension schemes have big impact on the movement of DSEI points. Foreign firms' main interest has always been on buying banks stocks - CRDB and National Microfinance Bank (NMB).

Friday, September 10, 2010

Investors Pour Money into Emerging Market Bonds

The South African Reserve Bank Monetary Policy Committee statement of September 2010 outlines the huge inflows of capital into South African markets so far this year.

The statement says:

"Since the beginning of the year, non-residents have been net buyers of equities and bonds to the value of R100 billion, of which R75 billion were bond purchases. This compares with net purchases of bonds totaling R15,5 billion in 2009 as a whole. Whereas in previous years bond flows appeared to be mainly speculative in nature, the recent developments suggest that there could have been a fundamental shift in these flows. There are indications that a significant proportion of these flows are more long term in nature as foreign pension funds and other fund managers take advantage of higher yields in emerging market economies. The higher levels of bond market inflows are not unique to South Africa. It is estimated that emerging-market bond funds have recorded year-to-date inflows of US$32 billion, compared with the previous full-year high of US$9,7 billion in 2005."

Thursday, September 9, 2010

Medupi and Kusile: supercritical giants of South Africa

The Medupi Power Station is a new dry-cooled coal fired power station being built by Eskom near Lephalale in Limpopo province, South Africa. When completed, the power station will have six boilers each powering an 800 MW turbine, producing 4800 MW of power. This will be the largest dry-cooled coal fired power station in the world. Kusile is a similar project to the north west of Johannesburg.

An article in Modern Power Systems (April 2009) warrants attention:

The 6 x 794 MW (gross) Medupi supercritical coal fired power plant is the biggest fossil power plant ever ordered by Eskom of South Africa, and will be the first baseload power plant to be built in the country in 20 years. Eskom has also awarded contracts for an identical follow-on plant, known as Kusile.

Key Points:

A wide range of mechanical and electrical skills will be transferred to local industry through a period of three to four years of training in such fields as design, building, maintenance and electrical technology.

Local industry will also benefit from the new power projects, which are required to have 50% local content, with a number of major components to be manufactured in South Africa (as well as Europe and China). This high level of local manufacture will create significant challenges, especially in conjunction with the ongoing infrastructure development related to the 2010 World Cup.

Indeed, South Africa is currently experiencing a period of unprecedently high capital investment, with consequent strain on the local supply chains. But so far South Africa’s indigenous industry is coping and seems up to the task of delivering the skills and equipment required to bring these giant projects in on time.

The full article is courtesy Modern Power Systems April 2009 Edition

You can read more about Medupi here

Tuesday, September 7, 2010

Renaissance Capital - The First Mover in Africa

Moscow-based Renaissance Capital (RenCap), an emerging markets investment bank, is on a mission to build its footprint across the African continent. The person leading that charge is Clifford Sacks, former CEO of Merrill Lynch South Africa.

Sacks, who is currently RenCap’s CEO of South Africa and head of Pan African Equities, recently spoke to Africonomist editor David Dankwa about the bank’s investment interests and priorities in Africa and why he thinks the continent is poised to become an important growth factory globally.


Where is the capital flow into Africa coming from at the moment?
We have seen a significant amount of investor interest from South Africa over the last couple of years. We think the South African fund managers are probably ahead of the pack in understanding and committing to Africa. We also see various other funds from different parts of the world, mostly in the United Kingdom, Europe and the United States. There is investor interest in Africa globally, which is a trend that is growing, not diminishing.

Has the financial crisis helped divert more investment capital from so-called safe havens to places like Africa?
Yes, but to be clear, in the height of any crisis when there is an aversion from risk, all the emerging markets will see capital flows wane. Africa is no exception. Capital to the continent ebbs and flows. As with any other emerging market, when there is a return to risk, you see flows into emerging markets. Africa is at the front of the queue on that.

Read the full interview here.

Saturday, September 4, 2010

Chinese Invasion of Africa - Since 1960

The influx of Chinese migrants, investors and businesses to the African continent is amazing:

By the 1960s, 19 African countries had official ties to Beijing. To help cement new diplomatic relations, Mao sent a number of Chinese to the continent in the 1960s, as well as 150,000 technicians between the 1950s and 1970s, to work in agriculture, technology, and infrastructure. Most returned to China after completing their contracts."

In northern Namibia, small Taiwanese businesses emerged as early as the 1970s, and Chinese textile firms were established in the Newcastle region of South Africa and Lesotho around the same time. These businesses established networks that current entrepreneurs still tap into when arriving in Africa.

Current immigration trends are linked more directly to China's liberalized migration and economic policies in the late 1970s, which permitted Chinese to leave the country and allowed for foreign investment.

Official estimates of the number of Chinese in Africa vary dramatically. Political scientist Sasha Gong reports official numbers to be only 100,000 Chinese workers in Africa — or 15 percent of the total overseas Chinese workforce. About 35 percent of those in Africa work in manufacturing and about 30 percent in construction, with the number of manufacturing jobs decreasing and construction jobs increasing over the past five years. Gong acknowledges that the official number is likely only a fraction of the whole.

An Ohio University database estimates the total number of Chinese in Africa at 137,000, the same figure Taiwan's government provided in 2001 (Taiwan's estimate in 2004 was 154,000).

Political scientist Emmanuel Ma Mung estimates the number to be between 270,000 and 520,000, with between 70,000 and 80,000 contract migrants. However, Xinhua, China's official news agency, estimates the total population to be significantly larger — as many as 750,000 Chinese working or living "for extended periods" on the continent.

In Angola, 2,500 Chinese work for Chinese companies financed by an oil-backed loan China granted to the Angolan government. University of Nairobi economist Francis M. Mwega anticipated a total of 30,000 Chinese workers for the project.

Political scientist Barry Sautman compiled press reports that estimate 1,000 to 3,000 Chinese in Cameroon, 5,000 in Lesotho, and as many as 50,000 in Nigeria (all estimates are for 2005). According to the Southern African Migration Project at Queens University, as of 2006 there were as many as 40,000 Chinese in Namibia on work visas and residence permits.

In a 2007 New York Times article, Chad Chamber of Commerce Director Renaud Dinguemnaial estimated an "influx of at least 40,000 Chinese in coming years" to Chad.

Perhaps one of the most telling signs of increased migration between the two regions is the rising number of weekly flights between China and Africa. In 2007, Chinese airlines began launching one flight per week between Beijing and Lagos, Nigeria's largest city.

Currently, three Chinese air companies offer routes to Africa: China Southern Airlines, China Eastern Airlines, and Hainan Airlines, which offers nonstop flights from Beijing to Cairo three times per week and a route from Beijing to Johannesburg via Guangzhou twice per week.

In July 2008, Emirates airline also began offering six flights per week to Guanghzhou, with connections in Dubai for those coming from Cape Town, Lagos, Cairo, Addis Ababa, and Nairobi.
For the rest of this article, click here.

Friday, September 3, 2010

Fixed Capital Formation - We Ain't Seen Nothing Yet!

Tough economic times in 2009 and so far in 2010 have destroyed gross fixed capital formation. However, during global economic expansion, look at the huge investment undertaken (in particular 2005, 2006 and 2007, as well as 1993 - 1997).

Why Gross Fixed Capital Formation is important.

Thursday, September 2, 2010

BRICs 'not complete' without SA

South Africa's foreign minister said on Thursday the informal grouping of fast-growing emerging economies known as BRIC -- Brazil, Russia, India and China -- should add South Africa to become BRICSA.

"We have doubled our efforts on BRIC and we remind them that it does not sound complete without SA at the end," Foreign Minister Maite Nkoana-Mashabane told a media briefing on her visit to China last week with President Jacob Zuma.

"The Chinese said they are hearing us and we should watch this space," she said.

The BRICs, a term coined by Goldman Sachs economist Jim O'Neill in 2001 to describe the growing influence of large emerging economies, accounted for about half of global economic growth between 2000 and 2008 and will account for 61% of global growth in 2014, according to the International Monetary Fund.

The countries are not formally linked but have held summits and taken steps to boost financial cooperation and investment opportunities between them.

South Africa, whose economy is about one-fourth the size of India's, has been lobbying heavily to be admitted to the group.

Zuma has made a point of visiting all four BRIC countries since taking office in May last year.

"In diplomacy one keeps knocking without annoying the occupants of the house," Nkoana-Mashabane said.

"We have done our best and made a positive impression with BRIC members."

South Africa to see Biggest Rail Investment in 100 years

The Department of Transport yesterday outlined an ambitious plan to revamp the country’s passenger rail network over the next 20 years, including the building of three high-speed rail projects, a new link between Tshwane and Moloto and a R95bn investment in new rolling stock.

Once implemented, this will be the biggest railway investment in almost a century.

Continue to Full Story...

Wednesday, September 1, 2010

M-Pesa to open new frontier for the unbanked

THE days when South Africans will pay for a taxi ride by simply transferring the fare to the driver’s cellphone are not far away, the head of SA’s largest cellphone company said yesterday.

Speaking at the launch of the M- Pesa mobile money transfer service that will be jointly run with Nedbank , Vodacom CEO Pieter Uys says the possibilities are endless.

And if Kenya’s experience with its own M-Pesa service is anything to go by, Mr Uys and Nedbank CEO Mike Brown believe they have not only struck a rich vein, but also opened a new frontier in the battle for the unbanked.

“Pesa” is the Swahili word for cash; the “M” is for mobile.

Pioneered by Safaricom with part-owner Vodafone, M-Pesa is an innovative money transfer and payment service that was initially targeted at Kenya’s unbanked population — millions of whom live in areas where building a bank branch does not make business sense.

But it has since been embraced by almost everyone with a cellphone, and Kenyans from all walks of life — from fishermen and vegetable vendors to sangomas — now use M-Pesa to transfer money, buy airtime and pay bills.

And barely three years after launching M-Pesa in Kenya, Safaricom has registered 12-million users who have made their cellphone a virtual moving bank.

And in that same period, about R50bn has been transferred to recipients using a cellphone. It is this spectacular success that Nedbank and Vodacom want to replicate with their version of M-Pesa.

Managing executive at Nedbank Retail, Saks Ntombela, says it is the first such money transfer service using a cellphone to hit the local market. Vodacom and Nedbank are already thinking of adding more services such as paying bills, buying goods and employer payments to workers via their cellphones.

Mr Ntombela says that up to 50000 partners would be registered as M-Pesa outlets, and these would range from the major retailers to spaza shops and community centres. Money would be loaded onto a Vodacom cellphone and can be sent to any cellphone number in SA. The receiver redeems the cash at any M-Pesa outlet or Nedbank ATM. Mr Brown says he hopes to persuade rivals to configure their ATMs so they can also be used to withdraw money sent via M-Pesa.

Vodacom and Nedbank predict that within three years, they will have registered up to 10-million customers using the service.

Mr Brown says the target is achievable, considering that about 13-million people were unbanked out of an adult population of 33- million. Nedbank, which is still trying to shake off the perception it is an elitist bank, says it wants to take the leadership role in spreading banking to the unbanked.

Mr Brown was unashamed in his boast yesterday, describing the launch as an event that will shake the market and leave competitors scratching for solutions to counter the threat. “We want to ensure that banking products are easily accessible,” he says.

Mr Uys says he expects increased usage of the network, as more people sign-up for M-Pesa, which will increase revenue through SMS traffic.

“We are planning nothing short of a mobile money revolution in the country,” he says .

“It is a simple idea but also totally revolutionary, particularly in the way we think about mobile technology and how it will affect the lives of people. With this service, you can now transfer money to anyone with a cellphone, whether they are a Nedbank customer or not,” he says. Nedbank, whose customer base has just breached the 5-million mark, says M-Pesa will ease money transfer woes for South Africans . But most importantly, Mr Brown says, it creates a new pool of potential customers who could eventually qualify for home, personal and vehicle loans — the bread and butter of any bank.

Mr Brown says with one in eight banking customers already doing business with Nedbank, M-Pesa will enable the lender to increase these numbers to within breathing space of First National Bank with about 6,8-million customers, Standard Bank , which has 8,6-million customers and Absa , which claims more than 11-million customers.

Original Piece