HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Well, when you talk about natural resources, you have to consider the continent of Africa, which is the mother lode when it comes to natural resources. And here today is Jamal Lucas. He’s a partner in the Lucas Smith Group, expert on the continent of Africa. Jamal, thanks very much for coming on the show.

Jamal Lucas, partner, Lucas Smith Group (Lucas): Thank you, Mike.

Norman: Now, you’ve been involved over there for a number of years. Why don’t we start off with an overview of Africa, its potential and where the hot spots are.

Lucas: Sure. Well, first and foremost, let me say, Africa is, in my opinion, the final frontier in terms of getting in with low-market entry points. The African economy has been growing steadily over the last couple of years by as much as 7 percent. And some of the resource plays — obviously, we're talking about gold, copper, natural resources …

Norman: Rare earth metals.

Lucas: … tungsten, rare earth metals. You can look in southern Africa and see plays in Namibia, South Africa, some of the other areas …

Norman: South Africa traditionally has been a focus on investment for a long time. We’re really starting to see that broaden out.

Lucas: Absolutely. And the Namibian economy is pegged to the South African rand, so Namibia is right next to South Africa in terms of development, from my perspective. But you also have resource plays in Ghana. There was a huge oil find off the coast of Ghana, the Jubilee Oil Field, where we’re talking about trillions of barrels of oil. So there are a number of resource plays. The Middle East obviously can’t be discounted at all. When we talk about agricultural resources, there are huge bee farms in Egypt and other areas of Africa that really make for an interesting dynamic for investors.

Norman: We’ve known about Africa for a long time. We’ve known about its vast rich mineral potential there. But there’ve been political pitfalls, geopolitical risks. Is that ameliorating? Is that getting better? Or it’s still kind of sketchy?

Lucas: Well, I think in any emerging market, some of the opportunities are based on supply chain gaps. And in Africa, when we think of the human resource capital, there have been gaps in the private sector learning for the local businesses, learning how to manage resource-dense opportunities. And definitely the government sector has done its part to continue to try to improve those opportunities for foreign investors to participate. But right now there are think tanks popping up, like Africa 2.0, a think tank that I’m a part of, where we have the leaders of Africa getting together to finally aggregate their experiences, and figure out how it is that they can create a stable platform, because it’s for the benefit of everyone involved.

Norman: We’ve seen a lot of activity from the Chinese moving in there, exploiting opportunities. Talk about that and also the U.S. and companies here and their official involvement from the governmental level and fostering this direct investment.

Lucas: That’s an excellent viewpoint. China has a volume-expanding economy and has for quite some time. And so the national policy of China has allowed Chinese entrepreneurs to go to Africa and simply benefit from the supply and demand gap. Africa has a number of resources, yet the continent has not had the infrastructure to properly exploit those resources. And Chinese entrepreneurs have been able by way of their foreign policy to set a tempo in which exploring the opportunity, validating the opportunity and then extracting the resources …

Norman: In other words, you’re saying they’re not constrained by political factors, like, let’s say, human rights or unfriendly regimes. They’re just looking at the opportunity and going for it.

Lucas: Yes. I would say that based on a lack of a brand development over resources, China has looked at Africa as basically a warehouse to create its own development. And in the United States, based on the way our democracy works, there are so many levels of debate and bureaucracy at times that U.S. investors and U.S. developers don’t necessarily have the same speed of development. So my experience is that African leaders have been enthusiastic about working with partners that are willing to work through the challenges with them as opposed to …

Norman: So are they a little bit frustrated that the level of American involvement is not really where they’d like to see it?

Lucas: I think “frustration” may be a strong way to mark that sentiment. I think that they are enthusiastic about the way that Chinese developers have been able to come and actually invest in infrastructure on the ground and create tangible signs of development, whether it’s putting up hospitals or roads. And those things, while over a long-term period of time may not necessarily have the same quality assurance as Americans can bring, they inevitably show signs of progress to the civil society in Africa.

So as I said, now what I’m seeing is a number of think tanks — I mentioned Africa 2.0 — that are popping up that are coming up with solutions to aggregate the best resources from Americans, from China, from India — which is becoming a strong trading partner in Africa — as well as from Europe. European investors have had their own challenges based on what’s going on in Europe in the last 12 months. And so Europeans who are looking to Africa to contribute superior technology are being welcomed also.

Norman: How is the current global economic climate impacting investment in Africa? Is it hurting it or is it happening despite what we see, let’s say, in Europe and maybe here in the United States or elsewhere?

Lucas: I think that’s an excellent question. From my perspective, Africa stands to gain. How it works out at the end, the result of the volatility in developed countries remains to be seen. But the African business model is basically ready to accept inputs from foreign investors who may not necessarily have the same margins that they were once looking at within their domestic issues that have predated the current investment challenge.

So basically Africa is in a developmental stage. The housing development is booming right now. And investors who are looking for larger margins than they may have seen in the past can look to Africa to house their resources.

Norman: Many countries would still be in that Third World status even though they are in a developing category now. What sort of a time frame do you see playing out where Africa becomes a regular and very normal place of investment? Is that a 10-year, a 20-year time frame?

Lucas: I think that based on the development that we’re seeing right now, it’s within the next eight to 10 years. I definitely think it’s going to be similar to what we’ve seen with some of the BRIC nations, obviously. The energy sector is obviously strong. There are offshore plays outside of Ghana over in Sudan. Down by Namibia there was recently a find of billions of barrels of oil. The energy sector is strong. The natural gas up-plays in Africa are strong.

When it comes to political stability, I think that Africa is in a very unique perspective in that while they don’t necessarily have the internal infrastructure to manage the resource plays, all of the citizenship and civil society is aware that those resources are there. And so they have a heightened sense of expectation that something should happen. So I really commend African leaders for being able to deal with that. I think it’s a bit of a unique situation.

But within the next three to five years, you’re going to be seeing some really strong internal investment opportunities in Africa for external investors…

Norman: How can the individual investor get involved, maybe not directly, but through large multinational companies that are very aggressively getting involved in Africa now? Can you give us some ideas there?

Lucas: Sure. I know that there are hedge funds and private equity groups that are now making resource plays in the area of agriculture. There have been, certainly in Kenya and other places, large frontier land grabs to take agricultural resources, because Africa, it’s pretty close, and it already has China as a bilateral trading partner, and India also. So from a volume-expansion opportunity, I’m sure that some of the hedge funds in the private equity groups will have emerging market funds that are available for investors to participate in.

Norman: Are there any Africa ETFs that you know of?

Lucas: Off the top of my head, I can’t necessarily …

Norman: Check that out.

Lucas: I think that might be a great opportunity. But there are also opportunities for investors to invest in directly. If they’re curious, they could go into the Johannesburg Stock Exchange, or the Namibian Stock Exchange, where there’s a certain amount of volume that would make an investor feel comfortable. We’re talking about some of the most developed infrastructurewise stock exchanges in the emerging market field.

Norman: Very intriguing. Very compelling. I want to thank you very much. Thank you, folks. Jamal Lucas. That’s it for now. This is Mike Norman, signing off. See you next time. Bye-bye.