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Unsafe Havens: Five Flights to Danger in Uncertain Economic Times


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.
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No positions in stocks mentioned.

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