‘Might does not make right, it makes reality’: Investing in Southern Africa
‘Might does not make right, it makes reality’
The above expression sums up many of the ruling classes of Southern African countries, writes Douglas Chadwick of Saltydog Investor.
It most certainly applies to the ANC party which controls South Africa, and also until two months ago to Mugabe who controlled Zimbabwe. I have always had an interest in this part of the world and twenty years ago I owned a factory near Durban which manufactured pine furniture that we shipped back to the U.K. and into our furniture sales and distribution system.
I almost became involved in setting up a saw mill and processing plant in Zimbabwe to supply timber to the plant in Durban. It was an attractive proposition and the Shona, the largest population in the country, was educated, friendly and not averse to hard work. Fortunately, we did not go ahead with the project because it was obvious the direction the country was heading under the rule of Mugabe.
‘when approaching an unknown coast or port it is better to do this on a rising tide’
My wife and I have many friends in South Africa and most years we will visit there on holiday; in recent years it has become more and more obvious that the ‘Zimbos’ have been moving to S.A. to find work, and then repatriate money to keep the wolf away from the family door. Their work ethic and attitude makes them stand out amongst the rest of the S.African working population and they have ended up with the better jobs.
So, to the point of this article; Mugabe has gone, and seems his successor, Mr Emmerson Mnangagwa, may be about to try to turn the clock back to when Zimbabwe was the bread-basket of Southern Africa and its people were well-educated and gainfully employed. It is a big ask, but any recognisable step in that direction will likely result in the return of the Zimbabweans to their home country. Achieve that, and Zimbabwe, rich in agriculture and natural assets will bloom again, but this time on a more equitable racial footing.
Another major problem in investing into these areas has been the disappearing value of their currencies. In 2015 the Zimbabwean dollar, after years of hyper-inflation, was virtually worthless, and trade was being conducted in other world hard currencies. Now that Mugabe is leaving perhaps the Zimbabwean dollar will obtain a value again.
Similarly, the S.African Rand was at 15R/£ in 2008 but after a few years of President Zuma’s careful attention it had fallen in value to 23.5R/£. Now that he is at long last heading for the sunset and a cosy retirement, it has recently strengthened to 16R/£. It will be good news for investors if Mr Cyril Ramaphosa is also able to ring the changes on the South African economy and the Rand continues to strengthen.
There are many funds that have Africa in their title, but frequently their investments are in international companies and are continent wide.
These two occasionally turn up in the Saltydog numbers:
- African Opportunity Investment Trust
- HSBC MSCI South Africa ETF
There are also many Emerging market unit trusts that have a percentage of their investments in Southern Africa, but then you also carry the baggage of the other country investments.
If the above scenario was to come to pass, it would be nice to find that unit trust fund which was more country specific. Of course one would want to know that the above process was definitely and irreversibly underway before making an investment.
Using nautical terminology; ‘when approaching an unknown coast or port it is better to do this on a rising tide’. That is sound logic, and anyone who thinks otherwise should submit to counselling!
Saltydog Investor Ltd is not authorised or regulated by the Financial Conduct Authority, and does not provide financial advice. Any information you use, or guidance you follow, is entirely at your own risk.
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