Dear Reader,

Explorer David Livingstone (19 March 1813 to 1 May 1873) was among the most popular national heroes of late 19th Century Britain. Today you and I recognise his name thanks to a successful advertising campaign for the Rolux Magnum lawnmower brand, widely broadcast on South African public television through the 1980s and 1990s.

The advertisement re-enacts the legendary meeting between H M Stanley and Livingstone, deep in the African bush. Stanley asks: “Dr Livingstone I presume?” only to be told “I’m afraid you’re mistaken – Rolux Magnum at your service!” Only a mower as tough as the Magnum could cut through the untamed wilderness better than Britain’s favourite explorer.

Livingstone was at the forefront of what wikipedia.org calls the “geographic discovery and colonial penetration” of the African continent. And that probably puts him right up their on the African National Congress’ “10 Most Hated” list. But I digress…

I’m sure by now you’re wondering what Livingstone, Stanley and Rolux Magnum have to do with stock markets and investing?

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The answer is absolutely nothing.

I’m simply using these anecdotes to introduce the key role player in today’s newsletter – Africa’s new coloniser – China!

As we thunder through the 21st Century China’s pursuing African resources with unprecedented fervour. Chances are if you went walkabout in the wildest part of Central Africa today – and bumped into a stranger – they’d be saying “ni hao” rather than hello. And a couple of years from now the “Dr Livingstone I presume” line used so successfully in a lawnmower advert will be replaced by “Ah! Premier Wen Jiabao!”

Jiabao is the sixth and current Premier of the State Council of the People’s Republic of China. This means he serves as head of government, leads the cabinet and guides economic policy for the world’s largest emerging economy. He’s got some clout with $4.985 trillion in GDP and 1.331 billion inhabitants to throw around...

South Africa’s ruling party – who never misses an opportunity to bad mouth the British colonialists – is bending over backwards to befriend the new African conquistadors. It’s what I like to call the greatest irony of the 21st Century.

They’ve been back and forth to China to entice Chinese “investment” to our shares and nagged incessantly to gain entry to China’s emerging market clique, the so-called BRIC nations. All facts considered South Africa has probably failed to read between the lines regarding this accomplishment.

The $44 billion merger and acquisition tag is the tip of the iceberg

First National Bank economist Cees Bruggemans has given the issue some thought: “South Africans were reportedly pleased as punch to hear China and Russia had invited us to join the BRIC club – for it promises endless fiestas of high growth and future riches.” The reality is when Goldman Sachs set about identifying New World growth opportunities South Africa wasn’t among the top four economies, nor in the “second tier” Next 11.

In other words – we don’t belong… The only reason China “helped” us into BRIC was to strengthen their position in Africa. With South Africa in their pocket (so to speak) they’ll enjoy much greater access to sub-Saharan Africa and benefit from many more opportunities to satisfy their hunger for commodities.

And they’re not lusting after precious metals like gold and copper! They want metals you can use to build cities and infrastructures. So when they come knocking they’re after copper, iron ore, ferrochrome, manganese, tin, zinc, lead… or anything with a “base metals” tag.

I don’t think anyone knows how much China has invested in Africa. They’re doing deals under the radar – often bypassing traditional methods to “acquire” assets direct from governments. That’s why the $44 billion of mergers and acquisitions activity through sub-Saharan Africa last year probably excludes most of the Chinese-based foreign direct investment.

The rest of the world is beating a “by the book” path to our doorstep after realising the African continent (all 40 or so economies) is as big as China or India. They’re on the hunt for rapid growth, an expanding middle class and growing trade with Asia. The current billion-strong population is expected to double by 2050!

"In sub-Saharan Africa you've got much faster economic growth, and not just faster economic growth, but growth that looks sustainable," said Adrian Saville, chief investment officer at Cannon Asset Managers (quoted on Fin24.co.za). How do we scoop up some of this growth?

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China or not, base metals exposure is critical for long-term African returns

So far local investors have benefited from being in the right place at the right time. Some of the largest “deals” in the media this year have significantly contributed to overall shareholder returns. I’m referring here to the 26% surge in Dimension Data shares after it was scooped up by Japanese-listed Nippon Telegraph and Telephone – and the spike in Massmart shares when US-based Wal-mart first showed interest.

The easy way for investors to benefit from China (and the world’s) ongoing interest in Africa would be to pick one of the Top-40 companies likely to be on an international acquirer’s radar. I’m not a fan of this route because there’s too much that can go wrong.

I’d rather be proactive and pick one of the many local companies with massive African exposure. A couple of months ago my favourite in this category would’ve been Shoprite Checkers. But today I’ll back cellular telephony giant MTN Group (JSE: MTN). This company has enough clout to enter new African markets – and enough current exposure to satisfy the most stringent independent assessment.

Buy MTN today at around R125/share and get your slice of the African renaissance.

Let the profits roll,

Gareth Stokes
www.investorsdigest.co.za

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