bad deals


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The $64 billion question remains as to how Zambia can attract western investors … we at the Zambian Chronicle (in July this year) once detailed that as a nation, the country had serious competitors and we needed to get into these competitors’ pysche as well as those of the would-be investors’ to succeed.

In an article posted in the Washington Post, Tomoel Murakami Tse shades more light on what western investors are looking for before they can make our enterprise a destination for their investment dollars … thanks a trillion

For Further Reading Click Here … http://zambianchronicle.com/2007/07/26/116/

By Tomoeh Murakami Tse

Washington Post Staff Writer

Forget the emerging markets of China, Brazil, India and Russia. If you’re looking for that extra kick in your investment portfolio, you’ll have to venture to Latvia, Bangladesh, Namibia and Ivory Coast, according to a small but growing number of mutual fund managers exploring the front line of stock investing known as frontier markets.

In the past several years, many investors who put their money into emerging markets enjoyed annual returns of more than 30 percent, attracting capital from Japanese housewives and American pensioners.


Bangladesh's market rose 60 percent in the past year. The head of the exchange says its value will double next year, lifted by IPOs for state and private firms.

Bangladesh’s market rose 60 percent in the past year. The head of the exchange says its value will double next year, lifted by IPOs for state and private firms. (By David Greedy — Bloomberg News)

 

But as investments in Chinese retail companies and Indian tech firms become more mainstream, and as more analysts caution that such outsize gains are not sustainable, money managers are asking: Where next?

“A lot of hidden gems are no longer hidden,” said Hugh Hunter, head of global emerging markets at WestLB Mellon Asset Management. “Clearly, frontier markets are the next tier. . . . We have no option but to go forward in this area.”

So don’t be surprised if you start seeing unfamiliar stocks from far-flung places on statements from your emerging markets fund manager.

Aside from the need to keep looking for new investment opportunities, Hunter and others say, economic growth and development of the capital markets have turned some frontier markets into appealing, long-term investments for those with a healthy appetite for risk. Money managers view the frontier economies much as they did the emerging markets of a decade ago. They are hopping on airplanes to visit countries where as few as a half-dozen companies are listed on the local stock exchanges.

A handful of mutual fund firms, including Franklin Templeton and Baltimore-based T. Rowe Price, already offer individual investors exposure to the frontier markets via emerging market mutual funds. This month, T. Rowe launched the Africa & Middle East Fund, with investments in Kenya and Lebanon, among other places. As markets develop, T. Rowe said, the fund could potentially invest in Algeria, Botswana, Ghana, Kuwait, Mauritius, Namibia, Tunisia and Zimbabwe.

 

“We’ve seen a number of factors come together,” said Joseph Rohm, an analyst for the fund. “Africa is enjoying strong GDP growth. Inflation has halved over the last five years. . . . We’ve seen governments spend heavily on power, electricity, roads. For the first time ever in the continent’s history, that’s really happening.”The fund’s largest holdings include United Bank, the largest lender in Nigeria, which recently implemented reforms in the banking sector. The bank is expanding operations outside the country, T. Rowe noted.

There is no precise definition of what constitutes a frontier market vs. an emerging market. Some investors, for example, consider Israel and Korea to be developed markets, while others do not.

In general, frontier markets are smaller — fewer companies, fewer investors, less trading. There’s also less regulation, information on companies and transparency. The markets are considered to be in the nascent stages of development and even riskier than emerging markets, which, of course, are riskier than developed markets like the United States.

Think of it this way: While a money manager invested in an emerging market might worry about bubbles created by unsophisticated domestic investors, his or her counterpart in a frontier market might be concerned about a lack of local investors.

About 540 stocks are traded across 22 frontier markets, with a total market capitalization of $165 billion, according to an April report by Acadian Asset Management. By comparison, the market cap of just one Russian oil company, Lukoil, is about $70 billion, and more than 800 companies are listed on the Shanghai Stock Exchange, one of two exchanges in China.

Despite its size, a frontier market can reward investors handsomely. In the past three years, the Ukrainian stock market has returned 700 percent. It has risen about 160 percent in the past year, while the market in Slovenia gained 110 percent. Botswana returned about 90 percent, and Bangladesh advanced 60 percent. But not all are winners. The Jamaican exchange is down 4 percent this year, though it gained 150 percent in 2003 and 2004 combined.

The S&P/IFC Global Frontier Markets index, which covers the stock markets of 22 countries, gained 49 percent in the year ended Aug. 31. That compares with 16 percent for the Standard & Poor’s 500-stock index during the same period.

But numerous potential downfalls exist in frontier markets. One big concern is the lack of “liquidity,” or the ability to buy and sell stocks quickly. Hunter of WestLB Mellon said it recently took him close to a month to get out of a single position in a frontier market in Europe.

There is also the risk of wild fluctuations in foreign-exchange rates, which can unexpectedly lower the value of investments. The value of the peso in Argentina, for example, plummeted five years ago when the government was forced to devalue the currency during the largest foreign debt default in history.

Money managers have to ask themselves fundamental questions. “What are the rules that allow me to get in and out quickly?” said Alka Banerjee, vice president of global index management for Standard & Poor’s. “Is there a derivatives market which allows me to hedge my exposure? These are the kinds of infrastructure that a stock market needs for it to become basically more accessible to any global investor.”

One benefit investors should consider, noted Rohm of T. Rowe, is the frontier markets’ low correlation to developed markets, offering diversification to individual portfolios.

Many emerging markets fell during the turmoil sparked by U.S. mortgage and credit markets this summer. Not so frontier markets. One reason is that they often deal only in equities and bonds and don’t have derivatives markets. Many of the exotic securities backed by subprime mortgages, the catalyst for the credit crisis, are traded in derivatives markets. “They have no exposure to these sort of instruments,” Rohm said.

On the other hand, many frontier-market economies are dependent on commodities. While raw materials and oil have high prices now, volatile commodity prices and a reliance on commodity exports have been a source of risk for developing countries. But some frontier countries are widening the base of their economies.

Debt relief from the World Bank has freed up African governments to spend their money on infrastructure, said Rohm, a native of South Africa who has traveled extensively across the continent. The emergence of the middle-class consumer has created opportunities for consumer-oriented companies.

“It’s very visible,” said Rohm, who recently returned from a trip to Nigeria, Ghana, Kenya, Uganda and Zambia. Before, “you wouldn’t have seen people walking around with mobile phones. There are a lot of new cars on the road. You see new roads being built. You see new factories being built . . . managements are very happy to meet with investors. They’re producing regular financial statements, which allows us to do due diligence on these companies. ”

We have edited the above article to highlight important issue relative to an investor’s pysche … thanks a trillion

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It is saddening to note that the Heads of States for the SADC region failed to hold Mugabe to the fire at the just ended symposium. Instead they characterized him as a champion in the fight against white supremacies.

(watch video above as Zimbabweans demonstrate in London recently)

 While it is true that whites have done some very dissolute things the world over against other races in their quest for power and wealth in the past, there have also been times when they meant well for the sake of common good, especially the Brits at least.

Mugabe can’t hide being racial remarks as a cover-up for the British led embargo and sanctions this time around.

We actually think that the Brits of all people have been impartial in their application of justice when it comes to then Southern Rhodesia and now Zimbabwe.

(Mugabe above with wife Grace at the SADC Summit in Lusaka last week)

In 1965, then British Prime Minister, Harold Wilson declared sanctions against Salisbury because Ian Smith was threatening Zambian sovereignty using economic saboteur tactics. Ian Smith was worried that the moderate Kenneth Kaunda would be very instrumental in helping black Zimbabwean’s get their independence from his white minority government.

Ian figured that if he cut off power at Kariba since he controlled the turbines and generators of the giant Kariba Dam on the Zambezi River, the Copperbelt – Zambia’s economic engine then would ground to a halt and he did.

Dr. Kaunda told the Brits he would ask the Russian for military help and Prime Minister Wilson offered help instead. He (Wilson) offered to send a token force—a squadron of R.A.F. fighters and a battalion of the Royal Scots—to the Copperbelt.

(Ian Smith on cover of Time Magazine issue, December 1965)

President Kaunda accepted the air protection (Zambia only had ten military aircraft of its own), but rejected the offer of troops unless they were sent directly to the dam. Not quite so funny were the new economic sanctions that Wilson slapped on then Rhodesia.

In addition to the embargo on Rhodesian tobacco and sugar (the nation’s major crops), Britain also banned imports of asbestos (a $30 million export item annualized), copper, lithium, chrome, iron, steel and meat.

That made the embargo 95% complete. Simultaneously, Wilson ordered a halt to interest payments, dividends and pensions from Britain to Rhodesian residents, thus damming a flow of income that totaled some $25 million the previous year.

Sir Harold Wilson even outlawed Rhodesia’s bright new independence postal stamp as British postage. The Brits did all this against their own white brothers because then Ian Smith was attacking Zambia’s economic sovereignty and interests; it made world news that Time Magazine carried this as a cover story in their Friday, December 10, 1965 issue.

This white supremacy crap we are getting from Mugabe can only hold water to those without a deep understanding of history. What is needed is a consented effort to force Mugabe to do the right things for the Zimbabwean Enterprise.

(Sir Harold Wilson – Former British Prime Minister)

Mugabe needs to respect human rights, he needs to respect the tenets of democracy and he needs to do things in the interest of the common Zimbabwean. No country has ever survived by not paying attention to their own issues face on and inflation at 4500% is simply unconscionable.

(watch video above as Levy declared Zim a Sinking Titanic)

classy-daddy-3.gifA few months ago, President Levy P Mwanawasa, SC. called the Zimbabwean crisis for want it was “a sinking Titanic” and the torn was right then and should be amplified now; that’s the memo this week from us at the Zambian Chronicle … thanks a trillion.

(you can read the full article from Time Magazine in the comments column below)

Brainwave R Mumba, Sr.

CEO & President – Zambian Chronicle

Copyrights © 2007 Zambian Chronicle. All rights reserved. Zambian Chronicle content may not be stored except for personal, non-commercial use. Republication and redissemination of Zambian Chronicle content is expressly prohibited without the prior written consent of Zambian Chronicle. Zambian Chronicle shall not be liable for any errors, omissions, interruptions or delays in connection with the Zambian Chronicle content or from any damages arising therefrom.

Zambian Chronicle is a wholly owned subsidiary of Microplus Holdings International, Inc.

Copyrights © 2007 Microplus Holdings Int., Inc.

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Zambia seeks to change its

mining policy

Resource nationalism seems to be strengthening among Zambians and the government has proposed changes to the country’s policy on mining that will subject investment deals in the sector to more public scrutiny and Parliamentary approval.

Author: Ronald Mwila
NDOLA 

As Zambian leaders debate whether or not the country is getting enough benefit from her mineral wealth, the Ministry of Mines and Minerals Development has come up with a draft policy for the sector that proposes a number of changes investors may find unfriendly.

Among the changes proposed in the draft policy are that the country shall not offer tax holidays in the mining sector but instead develop a friendly tax regime for mining investment. Further, all development agreements signed with investors would be subjected to public scrutiny and must be ratified by the National Assmebly before taking effect.

According to the draft mining policy, which seeks to replace the one of 1995 that was anchored to attracting investors into the mines as the country privatised the industry, any fiscal provisions in any agreement will be subject to public scrutiny and be gazetted before taking effect.

These new measures, if the policy is ratified by Cabinet, are likely to pacify many Zambians who are angry at what they see as the government’s failure to protect national interests when privatising the mines. Such agitation shaped the mood of the country’s last general election, in which populist opposition candidate Micheal Sata promised to assume control of all privatised entities so that local people could benefit more. For that, his Patriotic Front won Parliamentary seats in the copper-rich Copperbelt Province, traditionally a stronghold of the ruling party.

On fiscal incentives, the draft policy states that these shall be provided “in exceptional circumstances” only with the approval of an inter-ministerial team that includes experts from the Ministry of Finance and National Planning and Parliamentary ratification. The draft policy also proposes a periodic review of any concessions given to investors to reflect changes in macro-economic and market conditions.

Under the current policy, the government has the prerogative of negotiating development agreements with investors and giving them any incentives deemed necessary to enhance the investment’s viability without seeking Parliamentary approval.

Other proposals include facilitation of indegenous Zambians’ participation in mining ventures, which will be guided by the recently-enacted citizens economic empowerment Act.

http://mineweb.com/mineweb/view/mineweb/en/page67?oid=24484&sn=Detail

brainwave-sr-001-3.jpgRecent reports in the Zambian media that our own Zambian Enterprise has signed a communiqué with North Korea is not only disturbing but also flabbergasting …

NO DEAL IS A GOOD DEAL WITH NORTH KOREA DESPITE THE NEW DEAL!!!!

Firstly, North Korea has nothing to offer our beloved enterprise and even if they did, they are not a kind of companion we should be identified with as a nation.

Mr Shakafuswa is quoted as saying … “North Korea was willing to provide technical assistance to Zambia by training Zambians in agriculture, construction, information technology and sports. 

Secondly, North Koreans are starving and are currently asking for food and energy from western countries in exchange for nuclear disarmament, so how are they going to train our own nationals in agriculture?

Thirdly, a visit to Pyongyang shows a great contrast with a visit to SeoulSouth Korea. The two are worlds apart in terms of infrastructure development; so what are the North Koreans going to teach our people in the area of construction?

Fourthly, what information technology would come out of North Korea when they still have not fine-tuned even their short, medium and long range missile technology which expertise seems to be the only viable one they have … and what major sports on a global scale do the North Koreans champion? 

Lastly, the Zambian Enterprise is truly in a hurry to develop but we need to choose our friends wisely using a high level of meritocracy instead of sheer mediocrity … North Korea is a rogue nation with nothing to offer us and the only thing one would ever think of is their interest in our uranium which exists in abundant supply.

This could by far be the greatest driving national interest on their side and Zambia should shun them at all costs. You are measured by what company you keep and we urge the government to reconsider this so-called New Deal.

We would hate to wake up some day and the world has been embroidered in a nuclear holocaust with North Korea at the helm using Zambian uranium … thanks a trillion

Brainwave R Mumba, Sr. 

CEO & President – Zambian Chronicle 

Copyrights © 2007 Zambian Chronicle.  All rights reserved. Zambian Chronicle content may not be stored except for personal, non-commercial use. Republication and redissemination of Zambian Chronicle content is expressly prohibited without the prior written consent of Zambian Chronicle. Zambian Chronicle shall not be liable for any errors, omissions, interruptions or delays in connection with the Zambian Chronicle content or from any damages arising therefrom.

Zambian Chronicle is a wholly owned subsidiary of Microplus Holdings International, Inc. 

Copyrights © 2007 Microplus Holdings Int., Inc.