Investing In Commodities: No End in Sight
By Andrew Mickey
Sometimes I just don’t get it. Africa, the emerging market that seems destined to always remain an emerging market, is one of the last great bastions of natural resources that has managed to remain relatively unexplored.
And with commodities prices soaring, the world is watching China, the United States, and other industrialized nations attempt to develop new mines on the troubled continent. Right now, almost any country with mild political stability is attracting billions in direct investment from companies hoping to plunder the continent’s vast reserves of gold, diamonds, platinum, nickel, copper and other natural resources.
However, many of the former top natural resource producers in Africa haven’t been able to overcome political infighting and warring factions within their borders to permit economic growth.
My favorite example of this is the Democratic Republic of Congo (DRC). The DRC used to be one of the top cobalt producing countries in the world right up there with Russia. In the 80’s and 90’s, the DRC was a top contributor to the worldwide supply of cobalt.
Nine years later after two complete government overthrows, a presidential assassination, and two failed cease-fire agreements the DRC has defied the force of Adam Smith’s invisible hand as its cobalt production has plummeted even though cobalt prices have tripled. Estimates place the virtual shut-down in cobalt mining due to political turmoil to have cut the country’s output by 99%. The DRC’s lead, copper, uranium, and zinc production has fallen just as sharply.
And yesterday it was no surprise the United Nations dispatched a few armored vehicles and hundreds of peacekeepers into the DRC capital to deal with another failed cease-fire agreement. On top of that, last week the DRC impounded 300 privately operated trucks loaded with copper to hold them for ransom. Right now, it appears there is no end in sight for the mess that is the DRC.
But Africa is an odd place. While the DRC is mired in political turmoil with little hope for recovering anytime soon, its neighbor to the North, Cameroon has had a very successful two-party democratically elected government that has been flourishing for 16 years. And Cameroon has been attracting quite a bit of foreign investment capital lately.
So when you’re scouring the world for investment opportunities, always keep in mind the local political climate. Africa offers enormous potential, but there are only a handful of countries with established political systems that can truly support economic development.
That’s all for now,
Andrew Mickey, Editor in chief, BreakAway Investor
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