Deep Thoughts By James Bond

Ashby Monk

If you’re at all interested in investment opportunities in frontier economies, and you routinely deal with political risk (such as government overthrows and revolutions) then you should definitely pay attention to one man: James Bond. Not that one, this one: the James Bond who is Chief Operating Officer of the Multilateral Investment Guarantee Company. Why pay attention to this man? Because his bailiwick is helping investors to direct their assets into some of the more challenging and risky investment environments in the world.

Anyway, he gave a rather long interview yesterday on ABN that I thought was quite interesting. In it, he tries to offer some explanations for the political upheavals taking place in North Africa. Moreover, he offers a rather upbeat assessment of Africa from an investment perspective. As such, I decided to bestow upon Mr. Bond the honor of a “deep thoughts by…” post. So, without further ado, here are some of Bond’s nuggets of wisdom (which I’ve tried to lift straight out of the ABN video — also available on YouTube):

Definitions: “Political risk is arbitrary and unpredictable behavior by governments that make it very difficult for investors to come in and to essentially invest with confidence.”

Tunisia & Egypt: “The key issue in North Africa is youth unemployment. And the youth unemployment comes from two things. One: Schooling systems that haven’t been able to provide the skills that the young need to be employable. And [two] economies that really don’t have business environments for investments…Egypt invests in a year what South Korea invests in a day. So you can see that these are not dynamic economies and they are not creating opportunities for the youth. And that is a time bomb…So it’s about tackling issues related to education and the business environment.”

Notwithstanding the education and investment “time bomb” in Africa, Bond still sees quite a bit of potential for the region in terms of investment opportunities:

Macro Stability: “What we’re seeing in Africa generally is much better governance…and much better macro-economic management…which makes investing in the countries a lot safer and a lot more predictable.”

Relative Risk: “Bond yields, for the period before the financial crisis, were artificially depressed worldwide. So we didn’t have realistic pricing of risk. Now that has changed. And so people are now pricing risk. You can see that in some countries like Portugal in the Euro zone that are issuing bonds at the same rates as some of the African countries…People are now understanding that African countries are actually not that risky compared to some of the other potential investments. There are quite reasonable bond rates.”

So does that mean you should pull all of your money out of Europe and put it into Africa? Not quite. There are still plenty of challenges facing investors in Africa. For example, while the expropriations of the ’60s and ’70s may be gone, Bond flags up a new sort of problem:

Expropriation Innovation: “What we are seeing is a sort of creeping expropriation; that is, tweaking the rules of the game. Asking for an extra payment from telecoms companies…It’s no longer the big expropriation events we had before. It’s much more the chipping away at the property rights that we’re seeing.”

In all, it’s an interesting interview from a guy with quite an interesting job.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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