Investors Return to S. Africa - but Proceed with Caution

By Stan Hinden 1995, The Washington Post | St Louis Post-Dispatch (MO), April 17, 1995 | Go to article overview

Investors Return to S. Africa - but Proceed with Caution


Stan Hinden 1995, The Washington Post, St Louis Post-Dispatch (MO)


Slowly but surely, American dollars are starting to flow back into South Africa.

A year after Nelson Mandela's historic election, a growing number of U.S. corporations are opening new businesses - or reviving old ones - in South Africa. The U.S. government is developing financial-assistance programs for South Africa.

And U.S. investors are being offered new funds that specialize in South Africa.

This return to that nation comes after human-rights advocates - black and white - spent two decades fighting to keep American money out of racially segregated South Africa. Thankfully, the boycott worked, Mandela told the United Nations in September 1993, but the South African economy badly needed U.S. businesses and investors to come back.

Almost immediately after Mandela's appeal, three money-management firms created closed-end Africa funds, which have invested most of their $386.4 million in South Africa.

The funds, which trade on the New York Stock Exchange, are: Morgan Stanley Africa Investment Fund (stock symbol AFF); the New South Africa Fund (NSA), sponsored by Robert Fleming Inc.; and the Southern Africa Fund (SOA), sponsored by Alliance Capital Management L.P. The funds each have a fixed pool of shares that are bought and sold like corporate stocks.

There are also two new Africa mutual funds: the Merrill Lynch Middle East/Africa Fund and the Calvert Group's New Africa Fund, inaugurated last week at a Washington luncheon attended by eight African ambassadors.

As the promotional literature for the Calvert Group's new fund explains, "Investing in Africa is a trade-off between the fear of the unknown and the lure of the undiscovered."

It's a catchy line, but thanks to Mexico, investors now have a better idea of exactly what to fear when they put money into emerging markets funds: currency devaluations; heavy investments by foreigners who flee at the first sign of trouble, leaving other investors in the lurch; markets that are too small to allow investors to easily buy and sell when there is adverse news; and political upheavals, including assassinations.

Thus, fund officials agree, if you are going to invest in an Africa fund, give it only a small chunk of your cash and be prepared to hold it for a long time.

Investors in Africa, if they want to make any money, are going to have to do it the old-fashioned way - very slowly.

If you want to invest in South Africa, whether for social or other reasons, you will face a mixture of good and bad economic news there. Economic growth, which stood at 2.1 percent last year, should rise to 3.2 percent this year.

But inflation is running at 10 percent and interest rates are likely to rise.

The government plans to sell state-run businesses, efforts are being made to reduce tariffs and the country has moved to a single currency, which will increase foreign investment. The inclusion of South Africa in several emerging market indexes also will encourage new investments. …

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