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Investing In Safaricom

Written By Brian Hicks

Posted June 23, 2008

Nigeria is mired in oil turmoil, and Zimbabwe’s elections just turned bloody again. But regional growth is at 30-year highs and has room to run.

That’s why today I’m telling you to buy Africa.

Across Africa, outbursts and opportunities pose huge potential for risk and reward to the international investors swarming in. Here’s how you can make money in African investments.

The Safaricom IPO and Other African Investments

Just ask yourself, when was the last time you got in line at the bank… to buy stock?

Well that’s just what hundreds of thousands of Kenyans did this month, snapping up shares of mobile phone operator Safaricom for just 8 cents a share. It’s sub-Saharan Africa’s biggest listing ever, with eager investors valuing the company at $3.68 billion.

Safaricom is important to Africa’s developing markets in more ways than one.

First, the company is run with a 25% stake held by Kenya’s government, and 40% by U.K. mobile phone giant Vodafone (NYSE:VOD). This cooperative ownership bucks the competing trend of state expropriation and mismanagement that has proved disastrous in Zimbabwe and other countries.

Even though about 300,000 Kenyans were displaced and some 1,200 died in ethnically-charged violence this past January, Safaricom’s South African CEO Michael Joseph decided to go ahead with his IPO plans.

The listing didn’t go ahead just despite the violence, but even a little bit because of it—trade and transparency are increasingly seen as the best antidotes to political disorder in Africa.

This is a new model for a continent that has usually been treated more as charity case than investment opportunity in global financial circles (just a couple of years ago I strongly criticized Bloomberg News for featuring Germany as its own section of the world economy while all of Africa didn’t even merit its own page on the website).

Joseph told the Economist recently that getting phone service to the underprivileged in Africa "has been hugely more efficient than aid."

In Kenya, real people are taking ownership of a company that helps their lives through communication and even financing. And they don’t even have to go to board meetings.Consider that over 85% of black-owned businesses in Africa count a mobile phone as their only line of communication, so mobile telecoms directly stimulate trade in the massive informal economy.

On the individual level Safaricom is enabling customers to exchange money and even make mortgage payments by secure text message with its M-PESA service, tying telecommunications to transactions in a revolutionary way.

So Africa has built-in market momentum with technologies like mobile phones that allow masses of people to rise out of poverty directly into today’s information society. Whether or not they buy Safaricom stock, users are participating in a next-generation boom.

From 20,000 customers in 2000, Safaricom now has an astonishing 10.5 million users. That’s because chief exec Joseph adjusted to demand for pre-paid customers who carry no credit risk, and his company bills by the second to save users valuable pennies.

Credit risk is sure something hot on the lips of western marketeers these days, and we see in Safaricom a real plan to avoid the kind of hit developed markets are reeling from. So whether with technology or thoughtful business plans, African companies can clearly get a leg up on local growth markets.

However, just as you shouldn’t buy every American company simply because Google does well, you have to filter African investments on a case-by-case basis.

But Don’t Buy African Investments Blindly

In Zimbabwe, Robert Mugabe is still seen by some as a local counterpart to Nelson Mandela. Having contested British colonial rule from the underground for decades, Mugabe’s own presidency has turned into a quarter-century of repression and economic destruction that now makes some Zimbabweans pine for colonial rule.

Life expectancy for males in Zimbabwe is 37 years. Inflation is over 100,000%, store shelves are empty, and the opposition candidate in elections scheduled for early July is taking shelter in the Dutch embassy because hundreds of thousands of his supporters have had their homes burned. The culprits? Roving gangs dispatched by supporters of Mugabe’s ZANU-PF political party.

But here’s the crazy part… Though the country that was once Africa’s breadbasket has been turned into a Hobbesian wasteland as land was expropriated from farmers and turned over to ZANU-PF supporters who didn’t know how to harvest, the Zimbabwe Stock Exchange was the best performing stock market in Africa.

That’s because of major inside bets by the only people left in the country with real money—party leaders.

So keep your money out of Zimbabwe, but remember that Safaricom is just the beginning of a stream of listings that will come from countries besides the dominant regional power South Africa.

From Algeria to Zambia, African enterprise is on the move. We’ll keep you up to date.



Sam Hopkins

P.S. You can tap superior returns in Africa, but not just by staring at charts. You need someone looking at politics on the ground, with a sense of history to tell you where the future lies. Global Growth Stocks subscribers are already earning returns all over the continent, with single stocks and funds too. Don’t miss out on the next winning play from the world’s most dynamic markets. Learn more about GGS and go global right away.