Unsafe Havens: Five Flights to Danger in Uncertain Economic Times

By Minyanville Staff  OCT 18, 2012 1:15 PM

We turn to the eighth annual Failed States Index for a few investment ideas that ought to keep you up at night.


MINYANVILLE ORIGINAL Stashing your money away in an FDIC-insured savings account is so…dull. So-called “Widow-and-Orphan” stocks like Coca-Cola (NYSE:KO) or Procter & Gamble (NYSE:PG)? Borrr-ring. You’re not dead yet -- so we turned to the eighth annual Failed States Index (as well as a handful of entries scraped from the bottom of this year’s Global Peace Index) for a few investment ideas that ought to keep any investor up at night.


Somali Ambassador Idd Mohamed, deputy permanent representative to the United Nations, plans to start the Horn of Africa’s first-ever stock exchange.

“Initially the exchange will be based in Nairobi, but if the situation improves we could move it to Mogadishu,” he told reporters in August.

If you don’t want to wait around for Mohamed to get things up and running, why not take a flier on Somalia’s only currently operating bourse – which helps finance hijackings in the Gulf of Aden?

A pirate interviewed by Reuters in 2009 says that, in Haradheere, 250 miles northeast of Mogadishu, brigands set up an exchange of sorts to fund their activities.

“Four months ago, during the monsoon rains, we decided to set up this stock exchange," he said. "We started with 15 ‘maritime companies’ and now we are hosting 72. Ten of them have so far been successful at hijacking.” 

He explained that, “The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons, or useful materials.”

After a ransom payout for releasing a Spanish vessel, “investor” Sahra Ibrahim, was lined up outside the exchange waiting for her cut.

“I am waiting for my share after I contributed a rocket-propelled grenade for the operation,” she said. “I am really happy and lucky. I have made $75,000 in only 38 days since I joined the company.”

Between June and September every year, the number of hijackings drops, as monsoon season makes it difficult for pirates to operate the small skiffs used in attacks. Come autumn, the attacks begin once again, which are so frequent that Frontline Ltd. (NYSE:FRO), the world’s largest operator of oil supertankers, which transports cargo for companies including ExxonMobil (NYSE:XOM), BP (NYSE:BP), and Chevron (NYSE:CVX), has in the past considered avoiding the Gulf of Aden altogether.

Pirates know that the value of the ship and its cargo are usually worth far more than however much they are demanding, and a few million dollars is a drop in the bucket in relative terms for the ship operator. Whatever risks there are in attacking -- like the chance of being caught by the international task force of naval vessels patrolling the area, for one -- the risk of not collecting a ransom is lowered still, as corporate “Kidnap & Ransom” insurance today seems to be the rule, not the exception. 


Yes, the Khartoum Stock Exchange, believe it or not, actually exists. No, really. From the KSE website:

In the name of Allah the Compassionate the Merciful
In accordance with the provision of the fifth constitutional decree of 1991, the Transitional National Assembly passed the following act and was approved by the president of the republic.

The act goes on to describe the rules and regulations of the Sudanese exchange, detailing the assorted sharia laws by which investors must abide:

The stock exchange is governed in all its dealing and the performance of all its activities with shariaa and its guidance. This act and the regulations issued thereof shall be interpreted accordingly. Any different interpretation or dealing otherwise shall be considered null and void.

Foreign companies with their hearts set on listing on Khartoum’s big board will be disappointed to learn that “securities that are rendered for public subscription in the Sudan, or those that are exchanged in the stock exchange shall only be of Sudanese origin.” However, before you go and settle for some second-rate exchange like the NYSE, remember this:

Despite of the provision of item (1) above, the council of ministers, in accordance with a recommendation by the board may approve the rendering of the Arab and foreign public-share companies issued stocks and shares for public contribution in Sudan, in the stock exchange.

Here’s hoping. AFGHANISTAN

As the US military pulls out of Afghanistan, what better time to get in? Here’s the pitch to investors:

The Afghanistan Stock Exchange ‘ASE’ and her partner AESX Limited develop and operate the market. ASE, operating out of Kabul, acts as the client-facing entity and is the brand name communicated in the market. This includes client acquisition (companies and investors), order routing and deal flow generation. We will expand our presence through sales offices in Kunduz, Mazar-i-Sharif and other emerging business centers. ASE has initiated the process to acquire a license with the Da Afghanistan Bank ("DAB"), the financial markets regulator of Afghanistan.

If you do decide to check out the Kunduz sales office, try to spend as little time as possible outside -- militia fighters have killed Kunduz’s police chief, a group of 15 civilians just last month, two children during an attempt to blow up German peacekeepers with a land mine, and disfigured three school-age sisters by throwing acid in their faces after one spurned a potential suitor’s advances.

And Mazar-i-Sharif? Described by Foreign Policy as a place that “festers with the memory of savageries inflicted upon it again and again and again,” after a group of UN relief workers were slaughtered inside their compound in 2011, it may not be much safer than Kunduz. But at least you’ll know that your money will “be compliant with the ASE Rule Book,” as the exchange lays out, in no uncertain terms, that all “investors need to sign a Participation Agreement” as “part of the accession procedure.”


No, Pyongyang doesn’t have a stock exchange. But the world’s most isolated country does have minerals. Lots of them. Unfortunately, the North Koreans make it so difficult for anyone to operate according to global norms, even the Chinese are sick of trying to make a buck over there.

From China's state-run Global Times:

From 2007 to 2011, Xiyang Group spent more than four years to build a modern concentrating mill and produced a total of 30,000 tons of high purity iron ore. However, North Korea suddenly and unilaterally tore up the contract in February this year, saying the Chinese partners had violated the contract and forcefully deported the last 10 Xiyang Group employees this March.

On Xiyang's official Weibo, the company called the five-year investment in North Korea a "nightmare."

"Just overnight, all of Xiyang Group's assets in North Korea were forcibly taken over by North Korea," read a 6,000-word blog post, in which, the company unveiled fraud on the Korean side. Phone calls to Xiyang Group by the Global Times went unanswered. Xiyang's case is absent from the official website of the North Korea Investment Office.

"The negative effect of this case is like a tsunami, which has seriously damaged North Korea's reputation," Cao, a representative of a North Korean trade agency in Hunchun, told the Global Times. Being Chinese, Cao admits that it is hard for him to give advice to anyone who are interested in investing in North Korea. "This is a country full of uncertainties," Cao stated.

Ji Huiqin, chairman of Yunda Knitwear Clothing Co., has also had his head handed to him by Kim Jong Un & Co.

"I lost more than 2 million yuan in North Korea for no reason. After our equipment had arrived there, we were prevented from opening a factory, which had already been agreed in the contract we had signed earlier. They then refused to return the equipment to us. There is no rule to follow when dealing with people there, they could easily turn against a friend," he told the Global Times’ Feng Shu.

But North Korea does have some of the finest Fur Seal Penis liquor available anywhere:

Good luck finding that in Canary Wharf. CUBA

Beautiful beaches, tropical breezes, and the constant fear of being arrested and locked away forever.

British businessmen Stephen Purvis and Amadou Fakhre have been sitting in Cuban prisons for months now, held without charges after being locked up for…well, see, no one really knows.

As we reported back in June, the founders of Havana-based Coral Capital had no qualms about doing business in Cuba – before they  “disappeared.”

“We’re not virgins at this,” Purvis told a reporter, regarding the Bellomonte Golf Club, a 650-acre property under development when he was treated by the Cuban government to a complimentary stay at Villa Marista, the state security torture facility that apparently also doubles as a guesthouse.

As Fakhre, Purvis, et al (over the past two years, Cuba has sent 52 foreigners, as well as hundreds of Cuban ministers and officials to jail, and has expelled more than 150 foreign business owners and operators) have now discovered, part of the reform process appears to include President Raul Castro making good on a 2008 vow to root out the rampant corruption that has been a part of daily life for decades.

A noble goal, hampered by the fact that no clear definition exists of what, exactly, constitutes “corruption.”

A centrally-controlled command economy such as Cuba’s, with a near-total lack of transparency, ensures that “every act is fraught for anybody trying to exist, from businesspeople to the average Joe,” said a North American diplomatic official in Havana who agreed to speak anonymously.

It's likely why the State Department describes Cuba as having “a hostile investment climate, characterized by inefficient and overpriced labor, dense regulations, and an impenetrable bureaucracy.”

And the NYSE doesn't?
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.