Monday, June 29, 2009

Volume 3, Issue #57

Next summer, South Africa will host the world's most visible sporting event, the World Cup. The government has already started the spending spree, constructing stadiums to hold spectators and rail systems to commute them. The inflow of cash to South Africa's economy will ensure that it's an investment hot spot in coming years. (Full Story Below)

Also in Today's Issue...

When most people think of Africa, images of business and commerce don't usually spring to mind -- more like wildlife, safaris and famine. But those perceptions are beginning to change. Customer service call centers are popping up in Kenya, oil production facilities are coming online in Angola, and wind energy farms are under construction in Ethiopia. Morocco aims to be a major electronics manufacturing hub, and Zambia boasts a thriving tourist destination.

Of course, there's still much work to be done. According to Van Eck Global, Africa accounts for 15% of the world's population, but just a scant 2% of its economic output. But that will present a wealth of investment opportunities as these countries continue to industrialize. And at the vanguard of this transformation is South Africa.

Known as the "rainbow nation" for its rich diversity and multiculturalism, the country has made tremendous socioeconomic advancements since the days of apartheid. Today, South Africa is a constitutional democracy with a bicameral parliament and national elections.

But the political landscape isn't all that's changed. Fifteen years ago the government began an aggressive overhaul of South Africa's economy. Taxes were cut, tariffs were reduced, and pro-business reforms were put in place to create jobs, promote free trade and attract foreign capital. These moves effectively ended a long era of anti-competitive behavior and protectionist policies and opened South Africa to the global markets. Since then, inflation has fallen, budget deficits have been reined in, and the country's sovereign government debt has been upgraded to investment-grade status -- lowering borrowing costs for both public and private sector investments.

Along the way, South Africa has also developed a sound regulatory framework and well-capitalized banking system. And unlike many of the thinly-traded markets in neighboring countries, the Johannesburg Stock Exchange is highly liquid and home to dozens of world-class companies.

Set your Goals High
Meanwhile, it's no accident that South Africa has also become one of the world's foreign direct investment hotspots and a popular destination for outside capital. Auto makers such as Ford (NYSE: F), Nissan (Nasdaq: NSANY), and BMW have all set up shop in South Africa. The country is also attracting strong interest from pharmaceutical firms, thanks in part to stringent patent and intellectual property rights. And global leaders like Barclays (NYSE: BCS) and Vodafone (NYSE: VOD) have recently spent billions to acquire large stakes in South African counterparts.

All of this investment will help grow South Africa from the ground up -- not to mention create jobs and boost domestic spending. Of course, while investors will find opportunities in sectors ranging from manufacturing to retail to construction, South Africa's fortunes are still most closely tied to the mining industry. Remarkably, about half of all the gold ever mined on the planet was dug up in South Africa. The country also has the world's second largest coal deposit, and an abundant supply of platinum, uranium, diamonds and iron ore. And then there are agricultural products like sugarcane.

With heavy demand from China and other trading partners, South Africa exports nearly $90 billion worth of these commodities every year -- putting piles of cash in the coffers of top producers such as Anglo Platinum.

Overall, the South African economy has been expanding at an impressive 4% - 5% annualized clip in recent years -- with GDP reaching about $280 billion last year. That's hands-down Africa's largest economy, easily surpassing the production of oil-soaked runner-up Nigeria.

But South Africa is about to take a big leap forward.

Just as China benefited from the Beijing Olympics, South Africa is poised to see a major influx from the 2010 FIFA World Cup. The upcoming soccer championship is far and away the world's most visible sporting event, watched by over 700 million avid fans.

Already, the government has moved into overdrive in preparation for the big event -- constructing rapid transit rail systems, adding hotel capacity, upgrading telecommunications infrastructure and building stadiums to seat over half a million boisterous spectators. It's worth noting that the hospitality sector alone has already swelled by 80,000 new jobs.

Good Investing!

-- Nathan Slaughter
Editor
StreetAuthority Market Advisor

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