World Cup Fever in Africa

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The paragraphs below come courtesy of Mark Mobius, emerging markets guru and executive chairman of Templeton Asset Management.

I’m sure a number of you have been keenly following the World Cup matches as they play out across South Africa. For me, even though I was sitting far away, the opening match in the awe-inspiring Johannesburg venue felt especially close to home, since we have an office in this city originally called the “Place of Gold”

We have been coming to South Africa for several years, and we also have a number of South African companies in our portfolios, so we rejoice along with the South Africans that they are hosts of the FIFA World Cup 2010. In our opinion, the country has many world-class companies that present good investing opportunities. These companies have capable management teams and many are expanding their international market share. Higher global demand for commodities, a recovery in domestic demand and the hosting of the World Cup should further support South Africa’s economic resurgence this year.

A number of sectors could benefit from the World Cup, most notably those related to infrastructure, tourism, retailing, media and telecommunications. This is the first time the World Cup has ever been held on the African continent. The fact that the World Cup occurs in South Africa could enhance the country’s image and improve the world’s perception of South Africa, as well as potentially attract more tourists and investors to the region.

While South Africa is by far the largest and most liquid of the markets in sub-Saharan Africa, we are now also looking at lesser-known markets in the African continent, including Nigeria, Egypt, Kenya, Botswana, Ghana, Morocco, and Tunisia. Liquidity is the key concern for most investors, so markets that are the most liquid could attract greater investment flows. While markets in some African countries are developing quite rapidly, we think they have a long way to go before their potential is fully realized. In the meantime, private equity investments present an alternative channel for direct foreign investment, which is needed as a starter.

We have also observed the growth of new markets in the region. For example, Libya, which I wrote about earlier, already has a stock market and is encouraging the privatization of state-owned enterprises—a development some other African countries are repeating. Nigeria, a large country with substantial natural resources, is quickly emerging as an interesting investment destination. It has the second-largest proven oil reserves in Africa, and in late 2009, surpassed Saudi Arabia as the third-largest supplier of crude oil to the U.S.

Indeed, Africa as a whole has some of the world’s greatest deposits of natural resources, and only a fraction of those resources have been tapped so far. It is not only Africa’s mineral resources that appear attractive but also its agricultural potential and the abundance of water that we think may decide the rise and fall of nations in the future. In addition, the continent has a young and growing population, and its people could improve their education and skills to become a major asset to expanding manufacturing and mining enterprises.

We believe the outlook for Africa is positive. It has stirred the interest of countries like China, India and other fast-growing emerging markets, which require increasing resources for their growing economies, as well as countries like Russia and Brazil, who look to expand their enterprises into global operations. South Africa, acting as a representative for the continent through the World Cup, has shown that it can host an international event to international standards, and we believe this bodes well for the region’s future investment prospects.

No matter who lifts the World Cup trophy on July 11, I believe it is ultimately Africa that has won the attention of the world. Long after the games are over, we will continue to keenly follow the progress of this promising continent.

Source: Mark Mobius, Investment Adventures in Emerging Markets, June 24, 2010.

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