Investing in African Countries

Investing in African Countries: How I Discovered This Unknown Investment With 550% Profit Potential
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By Sala Kannan —  The Penny Sleuth(Sign up for FREE!)

In a world where the continent of Africa is only associated with bloody civil wars and crippling poverty, I stumbled upon this hidden investment gem. I met with Lesang Magang, managing director of Phakalane Golf Estate, while I was on an investment tour of Botswana. In case you didn’t know, Botswana is a tiny, diamond-rich country in southern Africa.

The phone rang in my hotel room. A nasal voice with a British accent said, “Hello, I’m Lesang Magang from the Phakalane Golf Estate. I just saw your e-mail and would love to meet.”

I was keen to visit the Phakalane Golf Estate because I had heard from many people not only about its architectural beauty and breathtaking views, but also about the entrepreneurship of the Magang family, which owns the estate.

When I arrived at Phakalane, a 15-minute drive from the capital city of Gaborone, I was pleasantly surprised. Not only is it an 18-hole golf course and estate, Phakalane is a sprawling multimillion-dollar housing development!

Soon, I was to find out that housing prices have risen 550% in the past 10 years and that the same growth is expected for the near future. I also found out about the dominant demand factors for Phakalane. I’ll come back to that in just a minute.

“Welcome, welcome,” said Lesang Magang. Like many business and financial leaders I have met in Botswana, Lesang is a young man. But his intelligence and knowledge are not to be underestimated.

The son of Phakalane founder David Magang, Lesang went to high school in Botswana and college in Birmingham, England. His diction and choice of phrases were that of a British colonial.

Phakalane golf course and housing estate.

Lesang walked us out of the clubhouse and onto the magnificent front porch. Situated 1,000 meters above sea level, Phakalane offers incredible views of the city of Gaborone and the mountains beyond. A European couple got out of a BMW SUV and entered the clubhouse. A Land Rover stood outside, and we got in.

Lesang drove us around the housing development and golf estate. The Land Rover wound around exclusive cul-de-sacs dotted with custom-built 15,000-square-foot mansions, Bulgarian-style bungalows and cacti and bougainvillea landscapes.

We stopped at the 15th hole to take some pictures. On the other side was a beautiful Mediterranean-style ranch house with dull peach walls. Two Chinese dragon statues stood on either side of the arched entrance. A brand-new Mercedes Benz and a 5 Series BMW were parked outside.

“The average house on the golf estate costs about $220,000,” Lesang explained. I was shocked. “These houses in the United States would easily go for $2-3 million,” I thought aloud.

“We have a 6 million house, too, on the golf estate,” said Lesang. “It’s 6 million pula,” he added with a smirk.

That’s $1.2 million. The most expensive house on the golf estate was just $1.2 million. And home prices are expected to rise 100% in the next two years. That’s a cool $1 million profit for just buying and holding a house for two years!

Outside the Golf Estate, in greater Phakalane, houses also owned by the Magang family are even cheaper. The average home fetches $118,000. And these are high-end, luxury houses, mind you. Chief justices and ministers live here.

(Not to mention the pula is a completely convertible currency. That means you can use U.S. dollars to buy property in Botswana without exchange controls.)

What is causing such high expectations for housing prices over the next few years? Lesang pointed out a few factors.

“In Africa, foreign direct investment usually goes where there is oil — doesn’t matter even if there are land mines around the oil. If not, foreign direct investment goes toward rebuilding countries after a bloody civil war. Often ex-colonizers will bankroll this money,” Lesang eloquently explained.

“In Botswana we have none of that. No oil, although there are diamonds. And we are the stablest democracy in Africa — elections every five years since 1965 and not a single civil war,” he said proudly.

We passed the 15th hole and headed back to the clubhouse. “That’s the acacia tree. Giraffes love to eat the leaves, the thorns don’t bother them,” Lesang pointed out.

“Anyway, in Botswana we expect foreign direct investment to come when the Diamond Trading Co. (DTC) moves here, in 2007.”

DTC is a trading company established by De Beers to price and sell its diamonds. The Botswana government owns 50% of De Beers. And they lobbied to move the DTC from London to Botswana.

It makes sense. As Lesang explained, “Botswana has nearly half of the entire world’s diamonds, yet we make only about $2 billion. Israel, on the other hand, doesn’t have a single diamond and they make $9 billion from the diamond industry.”

Lesang parked the Land Rover and lead us into the clubhouse for a drink. “It is a typical third-world syndrome,” he went on. “Raw material is extracted from the country and sent out for processing. The Europeans polish and cut our diamonds and make the jewelry. They make the high-end finished goods. We do the dirty work.”

Botswana has now successfully pushed for the DTC to move here. With that, the diamond polishers and cutters will come to Botswana. Lesang said already 13 cutters have registered to set up shop in the country.

Custom-built luxury homes – clearly, there is a lot of money in Botswana.

This influx of foreigners will obviously increase demand for high-end, secure housing.

A few retirees are also turning to Botswana and Phakalane. With soaring real estate prices and high crime in South Africa, many are looking to retire in neighboring Botswana. British Member of Parliament Nigel Jones owns a retirement home in Phakalane.

“We also want to piggyback on South Africa,” said Lesang. His eyes lit up with a fiery passion when he spoke about his expansion plans and the future. We were now inside an elegant sports bar. An Egypt-Ivory Coast soccer game was playing on a huge flat-panel TV. Watercolor paintings of golf legends like Arnold Palmer lined the walls. Woven baskets and other tribal art were placed around a fireplace in the far corner.

Lesang plans to feed off of South Africa during the golf and soccer world cups. He’s in talks with England’s soccer team to train at Phakalane prior to the World Cup. “They will travel with doctors, coaches, second teams, at least a hundred people. If we get them here, that will be good publicity for us.”

The entire Phakalane housing complex is good for the economy too. Lesang was happy to elaborate this point. We sat on beige-and-orange-checkered sofas. Behind us was a huge balcony overlooking an incredibly vast African landscape.

We ordered drinks and talked over the cool evening breeze. Sipping locally brewed St. Louis beer, Lesang said the banking sector is booming due to real estate demand. $220 million worth of bank loans were made in 2005. The same is also expected this year.

First National Bank, one of Africa’s largest banks, has a reserve of $61.8 million to lend out. And Lesang estimates that a total of 1.2 billion pula will be lent out as housing loans in the next three years.

From what I’ve seen so far, Phakalane and real estate in Botswana seem to be an undiscovered, high-growth investment.

These traditional “Rondaville” houses are made of mud and cow dung. The grass roof keeps the house cool in the summer. Very few of them remain because most of these traditional homes have been replaced with modern houses.


Sala Kannan

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Here are some other Penny Sleuth articles about Investing in African Countries:

Freedom of Speech — Tribal Style by Sala Kannan
Emerging market investors look at a complex set of parameters before deciding which countries to invest in. Factors like GDP composition, exchange rate stability and monetary policy are all certainly important. But often, emerging market investors overlook one important factor that can make or break a country. Here is how I learned how this factor contributed to growth and freedom in one African nation…”

Investing Where No One Else Will by Sala Kannan
Mark Mobius is a true investment maverick. He manages $22 billion at Franklin Templeton Investments, he has a Ph.D. from MIT and is a globetrotting investment hunter. He could be in Estonia one day, interviewing technology companies, and in China the next day to check out a steel plant…”

Lessons from Aged Scotch Whiskey and the African Sky by Sala Kannan
The person I met yesterday is a veteran asset manager; let’s call him Andy, since he requested anonymity. I met him at the Polo Lounge and Bar in the beautiful Westcliff Hotel. The Polo Lounge is a colonial-style bar and restaurant perched high on the Westcliff Ridge. We sat outside near the dramatically lit overflow pool; right below us, the little lights of suburban Jo’burg twinkled away…”

The Truth About Diamonds by Sala Kannan
Finally somebody has spoken the truth about diamonds. Now, I won’t go into detail about blood diamonds or conflict diamonds — stones that rebels sell to fund arms purchases.I’m going to tell you about a different sort of politics and market manipulation that is going on in the diamond industry. And you can actually profit from it — very legally…”

Here are some resources about Investing in African Countries:

Africa Recovery The United Nations reports on how foreign investment is a priority on Africa’s agenda.

Yahoo! Finance Market reports and other news stories covering African stocks, plus up-to-date indices.

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