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Finding Gold in Africa


For risk-taking, long-term investors, opportunities abound in Africa.

Here at Minyanville, we're less interested in geopolitics than investment opportunities but all the recent tough talk of African corruption, abuse and tyranny had us wondering: even for an investor with the strongest of stomachs and the longest of time horizons, is Africa a smart place to commit capital?

Certainly, American officials traveling to Africa recently haven't painted a feel-good picture. Secretary of State Hillary Clinton kicked off a seven-country tour last week, beginning the trip by reportedly ripping into the Kenyan political establishment.

This follows President Obama's address last month to the Ghanian Parliament, where the Commander in Chief argued that the persistent lack of good governance in Africa is a significant reason for the continent's continued problems. "Africa doesn't need strongmen, it needs strong institutions," the President said.

Despite these recent public tongue-lashings, market pros specializing in emerging markets argue that Africa is still a place many investors should seriously consider putting their money to work. However, these strategists also note important caveats: only those investors with patience, long time horizons and a healthy appetite for risk should invest in frontier markets like Africa, and they should understand the proper role of these investments in a portfolio, which often contradicts popular assumptions.

David Riedel, the founder and president of Riedel Research Group, a stock research firm that concentrates specifically on the emerging markets, says the primary benefit of Africa is clear: natural resources.

"You often see an economy get kick-started by the presence of some sellable commodity, which then brings money into the economy," Riedel says. "It starts to circulate, makes the banking system stronger, and before long you have another Brazil."

In fact, Riedel thinks it's instructive to look at where Brazil is today as evidence of where Africa may be headed.

"Fifteen years ago, Brazil was a basket case of economic mismanagement, corruption, and a totally unreliable currency," Riedel says. "Today, Brazil is rated investment grade, a net lender to the world, and seen as a core holding of emerging market fund managers."

Riedel thinks this same kind of transformation could take place in Africa. " I think those people who have patience, long term horizons and risk capital will be able to participate in what I think will be the big investment story of the next five and 10 years," he says.

In terms of specific stock picks, Riedel likes South African-based gold producers Gold Fields (GFI) and Harmony Gold Mining (HMY). He also likes telecom, an area that has attracted a lot of growth. "You can see the beginnings of a telecom revolution across Africa," Riedel says.
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