Interesting Articles

A few years ago an acquaintance, Neville, bragged about how clever he was. He said that he had taken early retirement, cashed in his pension and invested it in a wonderful scheme which was, and would continue to make him extremely rich. He demonstrated how every month, without fail, he was earning 15% on his capital investment of R400 000, guaranteed. He knew it was legitimate as he had invested R10 000 earlier and received his interest payments regularly and on time. Rather than cash in on his investment, he said he had increased it. I advised caution. In fact, I urged him to get out of the scheme immediately. I told him about Ponzi schemes and explained that most investors will lose their capital, guaranteed.  He knew better. He said nobody would dare to steal from him and if they tried they would learn the error of their ways quickly. He would also drive there with his bakkie and load up all their computers and furniture. He talked a big game.  Whenever I saw Neville in the following months he maintained the smug attitude about me being wrong and him being right. “I told you so”, he said many times.  I persisted in my warnings, to no avail. The next time I saw Neville he was much quieter. He let it slip that the investment company had missed a payment or two, but said that he was confident that it was no problem.  Soon after that the rumours started. The main principal of the investment scheme was no longer available telephonically and was hardly ever at the office. The staff had been retrenched.  Neville panicked and in desperation asked my help. It was too late, the money was gone.  Neville is working again and will have to continue to work for many years.   Read more

Africa’s economic pulse has quickened, infusing the continent with a new commercial vibrancy.  Real GDP rose by 4.9 percent a year from 2000 through 2008, more than twice its pace in the 1980s and ’90s. Telecommunications, banking, and retailing are flourishing. Construction is booming.  Private-investment inflows are surging.  To be sure, many of Africa’s 50-plus individual economies face serious challenges, including poverty, disease, and high infant mortality. Yet Africa’s collective GDP, at $1.6 trillion in 2008, is now roughly equal to Brazil’s or Russia’s, and the continent is among the world’s most rapidly growing economic regions. This acceleration is a sign of hard-earned progress and promise. Read more

The global financial crisis has shown that the developing world no longer holds a monopoly on investment risk. A new risk reality has emerged—one that is ubiquitous and less associated with the developing regions of the world. Thanks to this new reality, combined with macrotrends affecting the global economic landscape, businesses are now looking for new markets in which to invest.  In the aftermath of the crisis, the “South–South” expansion of trade and investment is likely to accelerate thanks to the global appetite for natural resources; the effects of climate change will continue to complicate growth and open up new investment opportunities; and changing demographics will have important implications for productivity and demand.  Against this backdrop, sub-Saharan Africa offers a better platform for profitable new investments than ever. Read more

Although Africa’s growth prospects are bright, they differ not only country by country but also sector by sector. In these articles, we examine the possibilities for seven of them: agriculture, banking, consumer goods, infrastructure, mining, oil and gas, and telecommunications. Perhaps the most fundamental point is that Africa’s growth story is hardly limited to the extractive industries. As many as 200 million Africans will enter the consumer goods market by 2015. Banking and telecommunications are growing rapidly too, and infrastructure expenditures are rising significantly faster in Africa than in the world as a whole. Not that the growth of the extractive industries won’t be impressive. The continent has more than one-quarter of the world’s arable land. Eleven of its countries rank among the top ten sources for at least one major mineral. Africa will produce 13 percent of global oil by 2015, up from 9 percent in 1998. For many companies, this is a future worth investing in. Read more

An investment in residential property represents the cornerstone of most families’ wealth. Given the financial importance of property to most people, it is worthwhile trying to understand the characteristics of this asset class better.  The ABSA House Price Index, charted below, shows that the value of South African residential property (blue line) has increased at a rate of 11.2% pa since 1966. With house prices now 100 times higher than they were in the 1960s, it is understandable that homeowners often relate with pride the safe and steady returns that their properties have generated. Compare that return to cash (red line), which has produced a similar - albeit slightly higher - return of 11.7% pa. In other words, house prices have not quite kept up with cash in the bank. Read more

Retired people are often most impacted by a fall in the equity market. The primary reason is that they have reached the stage where they are dependent on their savings to meet their daily needs. Retirees are no longer adding to their nest eggs, but rather taking away. Living annuitants, in particular, are highly dependent on the return that they generate on their capital base. When markets fall, living annuitants are required to withdraw from their capital at depressed prices, effectively locking in some of their losses at lower values. This can increase the likelihood that they run out of money. Read more