Farewell Emerging Market Investing (II) Middle East & Africa

I know this was supposed to be China/Russia and I will get to that.  But today I was inspired by a Thomas Friedman article and an article about Nelson Mandela's grandson who is actually doing something positive.

Thomas Friedman documents how a 2008 drought started the turmoil in Syria.  Climate Change is happening and it is going to cause conflicts:  where there is not a Democratic government, it will cause violence;  where there is a Democratic government, the conflict will be political.

The Middle EastNorth Africa is no place for a fixed income investor in my opinion.  No level of bond coupon compensates you for the risk of Iran doing something stupid; the risk of Israel not finding a way to create a two state solution for 75 years of conflict; and the risk that autocratic regimes in other parts of the Middle East/North Africa cannot manage a peaceful end to autocracy.  Throw in drought issues and it is impossible to be optimistic.

Link to Friedman

Now as for sub-saharan Africa, this is a tale of two environments.  The northern part is on the edge of chaos, where Christianity and Islam run against each other.  The edge of chaos then continues into the Middle East, up into the Caucasus Mountains, through the 'Stans and into India.  The book I read continues on with the theme into Aceh, Indonesia, and Mindanao, Philippines, but since that was written both Aceh and Mindanao are much better (although perhaps not perfect in Mindanao).

Anyway, only Nigeria is big enough to absorb the edge of Chaos conflict and remain safe enough for bond investors.  As we have seen, you need democracy to absorb religious conflict sufficiently to generate economic development:  Nigeria, Kenya and Tanzania prove this.  These and other countries in the region need to use their natural resources prudently to educate people, improve health care, and foster an environment that encourages the development of private sector economic activity.

As you move south, you move away from the edge of chaos, but the challenges remain the same.  Honest government that uses the resources to improve education, health and sponsors policies that encourage private sector economic activity.   Botswana is the poster child for success and South Africa has the capital and skills to lead the region.  However, South Africa must find a way to reduce its high unemployment and it can only do so if the ANC backs away from some of their more extremist elements.

I encourage everyone to go on Safari in South Africa, Botswana, Namibia and Zambia.  It is the best vacation you can take.  Poor Zimbabwe needs Mugabe to meet his maker and we will see what kind of government emerges thereafter.