What if I told you I could show you a place where resources were plentiful, labour is cheap, foreign money flows like water… and the investment potential is limitless?

And what if I then told you it was in Africa?

Imagine the scene…

Two figures are walking along a dusty bush trail deep in the Congo interior. The man in front wears a broad-rimmed sun hat and bush jacket… the deferential African porter trudges along behind him, laden down with exploration equipment. It could be scene from a Conrad or Somerset Maugham story…

They stop and the man in the hat seats himself down on a rock beside the trail. His servant pulls out a thermos flask and pours him a cup of tea. No sugar or milk, of course… they don’t go very well with green tea

The year isn’t 1908… it’s 2008.

And the man in the straw hat isn’t a Dr. Livingstone or Mr. Kurtz, he’s Mr. Chen… an engineer from Guandong province in China… and he is here on a very important mission. He is here to help secure the mineral wealth that China needs in order to feed its vast industrial complex.

Mr. Chen is part of the advance guard of Chinese engineers, surveyors and miners who will soon be descending on the Congo as part of China’s biggest deal on the continent so far.

Here comes the Dragon

You see, the Chinese have now reached an agreement with the Democratic Republic of Congo where China will invest $9 billion dollars in reviving the country’s war-ravaged infrastructure and mines. In return they will get access to the African giant’s vast mineral wealth. A massive $6 billion of that is going to be spent on desperately needed infrastructure. The impact on the country is going to be huge…about 2,400 miles of new roads, 2,000 miles of railway, 32 hospitals, 145 health centres and two universities.

The Chinese aren’t doing any of this out of the goodness of their hearts though. In return for all that investment, they will get access to a slice of the Congo’s mineral wealth. Well, actually, calling it a slice is a bit of an understatement. They will get access to up to 10 million tonnes of copper and 400,000 tonnes of cobalt. To put that in perspective, China could make a profit of up to $42 billion on the deal. And that’s after Even after the $9 billion they will have to spend.

Congo is set for take-off

Congo ’s economy grew by about 6.5% last year and could grow by 8.4% this year. If the mining and infrastructure spending takes-off as planned, the country might hit double-digit growth by 2010-11. They have got the resources for it. Congo produced about 500,000 tonnes of copper in 1989 – that was down to just 23,030 tonnes last year. The Congo government had a budget of just so $1.3 billion last year. So, China’s investment is going to give this economy a shot in the arm. The Congo looks set for take-off. In fact, it’s receiving so much investment into its mining industry that it is beginning to look like the new Canada.

How to profit from it

We are already positioned to profit from what’s happening in the Congo through our investment in a certain pan-African conglomerate. This company is setting up a hotel in a mining boomtown – right in the heart of Katanga province, where the bulk of the Congo’s mineral wealth is located. And they’ve got a water bottling plant close by as well – both vital support for the region’s booming mining industry.

The growth story here is so exciting that we are just putting the final touches to an in-depth investment report showing you how you could win big in the region. We’ll be issuing this report to all our regular readers as soon as possible.

But as we know, Asian economies are now booming and they need metals and minerals to fuel that growth. Where better to go for that than Africa, with its vast unexploited mineral resources. China has seen the golden light, but now it seems that India, too, has the continent in frame. Better still, some African governments are actively courting Indian business to invest.

A bid for Indian investment materialised at a recent three-day India-Africa business summit in New Delhi which attracted no less than 500 delegates from 30 African countries! There Tarun Das, chief mentor of the Confederation of Indian industry (CII), said they will open four new offices in different regions of Africa to help.

Since the likes of Namibia, Zambia, Mozambique, Democratic Republic of Congo and Ghana are among the countries trying to lure Indian investment that is no surprise. Even troubled Zimbabwe can see the potential. (The Zimbabwean government, new or old, is hardly in a position to turn down any investment!).

Competition is healthy

Competition for China in Africa has to be a good thing. China now has $10bn invested in Africa. It has been sewing up deals with African governments to secure the continent’s vast mineral wealth. And it has done this by giving loans to cash-strapped governments. Something that hasn’t exactly gone down well with international mining companies, who are worried they are losing their grip on the continent!

But what about India? Is this Africa’s new sleeping dragon? After all, it too has started extending loans to Africa – India now has $1.37bn now invested in the continent.

Continues below

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More transparency please…and less red tape

But Africa wants India to do more than simply exploit mineral resources. India, Mr Mutati said, could speed industrialisation, improve infrastructure and strengthen regional cooperation. The Indians have much sought after and cost-effective technology and could supply equipment to the mining industry to process raw materials.

For example, India and Namibia (which produces 6% of the world’s diamonds) are currently looking at setting up a training facility to polish and cut diamonds. Jewellery designing is also on the cards, said India ’s Minister of State for Commerce, Jairam Ramesh. The objective is to cut out the middle man. You can see why. India is the world’s biggest importer of uncut stones. It is also the biggest exporter of cut and polished diamonds!

The Indians should also continue to invest in training. Africa should take advantage of this, said Bwabwa Wa Keyembe, Congo’s director general of the National Agency for Promotion of Investments.

By playing its Africanisation cards right, India would, in return, have access to the world’s biggest untapped resources. Mussa Uthman, the deputy director of investment promotion centre in Mozambique, promised “big reserves of diamonds, copper and nickel which could be viably exploited”.

That is certainly true! Mozambique has considerable mineral resources including gold, gemstones, titanium, coal and bauxite. And to date these remain buried.

To some extent India is already proving its commitment. India ’s Tata Steel has already made a foray into Mozambique. One of the things it has done is to build a 120 MW plant to supply power to the mining industry in Zambia. Good news for other miners considering a future in Zambia!

So India and Africa – a match made in heaven? Well not quite. Aside from the political risk, there is also plenty of red tape to cut through. Obtaining licences is not exactly easy, nor is getting a visa. Africa needs to be more transparent in this respect but Zambia’s Mr Mutati seems confident that they can and will make things easier! There are already moves to simplify procedures.

The new silk road?

The dean of the African diplomatic corps, for example, is considering a multiple visa system with embassies in New Delhi. And Mozambique is already negotiating a “uni-visa” system. If that materialises, a visa to South Africa could allow an investor to travel elsewhere too.

So how does the private investor gain exposure in Africa? Investing in something like the little-known New Star Hidden Value Fund or the Vanguard Precious Metals and Mining Fund are two lesser known options. Then there are other more popular funds like Merrill Lynch’s Gold & General.

But, surprise, surprise, Erin wants to remind me to be careful with African selection! Famine, disease, war, corruption – some countries are pretty risky. Of course she is right, but consider this. In US dollar terms, over the past three years almost all African indices outperformed the S&P 500. Stars were the Mauritius All Share Index rose 75% and Nigeria’s All Share Index, which doubled. Those are just two examples.

The Chinese have seen the golden light. Now the Indians look set to bask in it too.

So keep mining, but cautiously,

Erin and Isabel

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