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Doug: Lobo, you were in Africa – the Congo – last time we talked. How did that go?
L: I saw a lot of changes from my previous visit to the DRC in 2006. That brings up an interesting question, as we do invest in companies working in several African countries, and you’ve described the continent as "a perpetual basket case." What’s your take on Africa today? Is it doomed to remain the heart of darkness, or could things be looking up at a last?
[Ed. Note: The reference here is to the Democratic Republic of the Congo (DRC), not the Republic of the Congo (ROC).]
Doug: I think it’s very much an open question at this point, as to whether Africa has a dim or bright future. It’s all about management, not resources. Africa has always had plenty of resources, but the worst management possible. Resources are actually a liability for most places. The classic examples of places not needing natural resources for success are Japan and Hong Kong. They have essentially zero natural resources, but became immensely prosperous because they had good property rights and predictable laws. On the other hand, you’ve got countries like Venezuela and Nigeria that have been blessed – or cursed, as the case may be – with great mineral wealth, but are absolute basket cases. And they’ll stay that way until the governing philosophy changes.
Success of a society is totally a "people" thing – management. Without social systems that encourage prosperity – which is to say, encourage personal freedom – natural resources are counterproductive. They just become something for the strongest thugs to steal. Since the mineral rights in Africa all belong to the state, the best way to steal the diamonds, gold, oil, or whatever, is to get control of the government. Governments are obstacles to prosperity almost everywhere, but in Africa they are totally counterproductive. They’re exclusively vehicles for theft and repression.
All across the continent, every regime – and I can’t think of a single exception – became a hellhole after the colonial powers left. They exported nothing but minerals – the farms and plantations all went back to the bush – and imported nothing but crazy ideas and luxury goods for the rulers, mostly from Europe. Then, to compensate, Western governments have shoveled a trillion dollars of "aid" into the continent over the last 50 years. That was all money stolen from poor people in rich countries that ended up lining the pockets of rich people in poor countries. It cemented the poor Africans to the bottom of the barrel. Crucifixion is too good for people who promote foreign aid.
I attribute almost all of Africa’s disastrous problems to colonialism. If Europeans came there as traders, it would have been beneficial to everyone. But they came as conquerors, destroyed the existing native cultures, engaged in horrendous wholesale slaughters – the Congo being perhaps the worst example – and imposed alien religions and political systems on the natives. My friend George Ayittey details this in his books.
L: My 11-year-old daughter is somehow aware of this – when I came back this time, she told me she was deeply offended by the rulers and other rich thieves in African countries who redirect foreign aid to their bank accounts in Switzerland, while the people it’s intended to help starve. But it occurs to me that what you said about the mineral rights is true of Latin America and other places as well; if you want to mine, you don’t go to the people living on the land, you go to the government to buy or rent the right to do so.
Doug: Yes. The only exception I know of is the US, where if you own the surface rights to a piece of land, you own the subsurface rights as well, including mineral rights. It’s only if someone wants to mine on government land that they need to file claims and deal with the government. This is one reason why the US was the world’s most prosperous and least corrupt country in the past. Private property rights like this served as one limit to the size and importance of the state.
L: Right. And as a "people system," the ability of individuals to own mineral rights had a lot to do with America’s westward migration in the 19th century – the great gold rushes and such. Mining was also one of the main things that paid for that expansion. But we’re straying from the subject. It’s new to hear you say Africa’s fate hangs in the balance; I’m used to hearing you say the place is hopeless. What would be a possible pathway to improvement?
Doug: Well, unbeknownst to most people, it seems that GDPs on the continent have been expanding very rapidly over the last decade. Now, of course those figures – issued by inept, despotic, and kleptocratic governments – are highly questionable, but most of the countries in Africa are actually starting to turn around, and strongly. Part of it is because they’re starting from such a low base. But most of it is because things have improved so much from the way things were in the ’60s and ’70s. In those days most of Africa was run like Haiti was under Papa Doc – or worse.
L: That may be so, but a major source of that growth is the Chinese money pouring into the continent to lock up natural resources – and escape the dollar trap, to boot. Is that really a reason for optimism, or does it just mean the new thieves in presidential ribbons will continue gorging at the trough, with no lasting benefit to the people?
Doug: I remember when I first went to Zambia, in 1985. I don’t believe there was a bookstore in Lusaka – although they sold a few dog-eared Marxist tracts at what laughably passed for the best office supply store. The same thing in Tanzania, where I stayed in the best hotel, but had one light bulb to move between my bedroom and bathroom. That kind of thing was typical. Now the whole continent is changing. Everybody has a cell phone – except me, I hate the damn things – and access to the Internet. People are moving into the cities and joining the middle class.
Africans aren’t stupid; they’ve just been sold on every stupid collectivist idea that’s come down the pike from Europe. A bloated state controlled by a kleptocracy has been the pattern so far, but there’s change in the air. The disastrous colonial period and the catastrophic post-colonial period are receding into history. As I recall, the first African country to free itself from its colonial overlord was Ghana in 1957, followed by a whole spate of independence movements in the 1960s. Ghana was a nightmare under Nkrumah, but by the time I went there in 1994, it was to play polo with our excellent partner at Casey Research, David Galland – talk about a small world! – and the place was already on its way up.
L: That would be true for sub-Saharan Africa. I think the very first was Libya.
Doug: That’s right; Libya in 1951, and then Egypt in 1952. At any rate, I suspect they had to go through a stage during which the people thought that independence alone would make their countries as rich as those of their former colonial masters. That was the stage where an African thought he was successful if he could wear a tie, have a pocketful of pens, and carry a clipboard, even if he didn’t know how to write. When the Congo went independent, there were only something like a couple dozen natives who even had a high-school education. They were ripe prey for Uhuru jumpers and neo-colonialists from the IMF and World Bank. That’s changed. Those worthless institutions are now on the ragged edge of bankruptcy, and Africans have become much more sophisticated. There’s an understanding that it’s not a matter of race; your enemy – or friend – can be white or black. And soon a lot of them are going to be yellow.
L: You really believe that?
Doug: I didn’t say they’ve all become free-marketeers. But I do think they are starting to realize it doesn’t matter if the thief is a white guy on a throne in Europe or a fellow black who’s made himself president for life. People don’t have to be deep political thinkers to simply want governments that work – meaning, they allow prosperity to flourish. Of course, no government produces any prosperity. But even kleptocrats are starting to realize it’s much better to steal 10% of a huge pie than to try to steal 90% of a tiny pie.
L: Okay…
Doug: On the other hand, there’s a huge problem in Africa, stemming from the fact that none of these countries truly represent the historic homelands of a specific people. The lines on the maps were all pretty much drawn up in boardrooms in Europe during the 19th century without regard for tribal homelands, differences in language, or even to geographical barriers, in some cases. With the possible exception of Egypt – and to a much lesser extent Ethiopia – each of these countries is an agglomeration of different tribes, ethnic groups, and religions that don’t mix well together.
The result of this has been that the governments of these countries have become prizes sought after by each group, to be used for profit and to reward buddies by stealing from everyone else.
L: Could the countries be reorganized along tribal lines to result in something more peaceful and durable?
Doug: That would be a step in the right direction. But they’d just find other differences upon which to base plundering a new group of victims for the benefit of a new group of fat cats. The best hope would be the complete breakdown of the nation-state as a way to organize society, and for the various groups to self-organize into voluntary social systems, along the lines of the phyles we’ve discussed in the past. Id say the same thing for Europe, Asia, and the Americas as well, where different sorts of tribalism are alive and well. The nation-state is definitely on its way out; it was a really suboptimal – I’m being kind – way for people to organize.
L: Perhaps so, but wouldn’t you still have a threat of war between Hutus and Tutsis and other such feuding tribes?
Doug: Maybe. Maybe not, if they weren’t forced to mix. South Africa has avoided a civil war in spite of having a dozen or more major black tribes, as well as two white ones.
L: That could be just around the corner there…
Doug: Yes, they’ve been very fortunate and dodged the bullet so far. We’ll see. In Nigeria, where there were an estimated 300 different tribes at the time of gaining independence in 1960, they had a civil war that was knee-deep in gore during the late ’60s in Biafra. Now there’s tension between the Muslims in the north and Christians in the south; Nigeria, like all these countries, is an artificial construct that should be disassembled. Sudan just broke in two for similar reasons, and the new trouble in northern Mali has similar roots. If these very different peoples weren’t forced to live under the same political system, they wouldn’t feel the need to fight for control of it. It’s best to let others go to hell in their own way.
L: Okay, I can see that.
Doug: I think this is a global trend, by the way – as we discussed in our recent conversation on Europe. What about you – did you see much evidence of tribal conflict in the Congo?
L: I asked people about that, actually. I asked them if a country as big as the DRC – second-largest in Africa, and eleventh-largest in the world – could stay together with all its different tribes. I was reminded that the most recent war only ended in 2003, with residual problems lasting into 2004 – they were still quite visible when I was there in 2006. It was all very fresh then, and the country still had the appearance of an armed camp, with many of the survivors dressed in rags…the ghosts of hundreds of thousands of dead still in their eyes.
This time, I saw signs of new prosperity – many of the family farms I flew over had new tin roofs on a building or two, and cheap Chinese motor-scooters swarmed the jungle pathways like insects. There’s a highly visible UN military presence along the border between the DRC and Rwanda, but still, Sunday afternoon brought out a lot of smiling people in new, brightly colored clothes. It’s just a beginning, but these people are busy rebuilding. The ones I spoke with think most Congolese don’t want to hear about tribal divides and the like; they just want to get back to earning a living.
Doug: That makes sense. With hundreds of different ethnic groups and local languages, there’s no reason for the place to pretend it’s one country. I was a big fan of Katanga trying to secede back in the ’60s. At least they share a common language in the DRC – French. The tribes all have their own languages, but decades of Belgian colonial occupation at least left behind a lingua franca that helps them all to communicate. It was the first African country I took a real interest in. I still recommend a really good movie, Dark of the Sun, about the mercenaries in Kasai province in the ’60s. I passed through M’Buji-Mayi when I was there. One thing I remember clearly was an old 707, acting like a tramp steamer of the air. The plane was totally without ID, painted in primer. I walked up to the pilot, who was a really good-looking Belgian girl in her 30s. One thing I asked her was how she navigated. She said, "I’m the queen of the GPS," and showed me her handheld device. I last saw that plane when I looked up as I was sitting in a café in Uganda several days later. It made me feel like that guy who saw the girl in the T-bird at the end of American Graffiti…. Anyway, I love weird places, and Africa is still full of them.
L: I’m sorry to say that the people I met were more mundane. But again, the answer to the question is not that the people feel all united into one nation as a result of their history, but rather that no one had time for nonsense. The people are tired of fighting. Sort of like Colombia, at the end of the violencia.
That’s very different from the answer I got in Ghana, where the largest tribal group – by a large majority – is the Ashanti, who are seen as warlike. Since they are fierce and a majority, none of the other tribes are willing to take them on, and there is a sort of pax Ashanti.
Doug: Which is different again from Zimbabwe, where the contest was largely between two tribes, one represented by Mugabe – who is a Shona – and the Ndebele tribe, led by Nkomo. The Shona won. Maybe that will mean the crates of Shona stone sculptures I bought there a few years ago will have political as well as artistic value someday. But back to the DRC – where did you go, just Kivu province?
L: Last time I flew into Lubumbashi in southern DRC, and this time I flew into Bukavu, on the southern shore of Lake Kivu, which straddles the border between the DRC and Rwanda. This is all to the west of Lake Victoria, in an area that’s sort of Africa’s equivalent of the Great Lakes. It’s remote, mountainous, and covered with jungle known to harbor both guerillas and gorillas. Both seem to be dying out – unfortunately in the case of the latter. I saw no sign of either, but I heard of a guerilla attack on a town near one place my chopper set down one day, six months prior.
Doug: I visited the same place in 1998, after the preceding war, the one that overthrew the dictator Mobutu, who was a US stooge who looted the country for many years. That was just before the war you’re talking about, in which Rwanda, Uganda, and several other countries got involved; something like four million people died. Nobody knows exactly how many. But I visited the city of Goma, on the north end of Lake Kivu. I stayed at a friend’s house on the lake, and we’d go swimming in the lake each morning. The first morning, as we looked across the water at the Rwanda border, only a few hundred yards away, I asked my friend if he was able to take his daily swim during the big troubles in Rwanda – back in 1994 when they killed about a half a million people in 100 days. He said no, because there were bodies floating everywhere in the lake.
L: That’s a big lake – it takes three hours to reach Goma from Bukavu by speedboat.
Doug: They say almost a million people died in that particularly nasty episode.
L: You’d never know it to look at the place today. There are colorful villages on the shores of the lake, bright tropical flowers in abundance, fishing boats on the water. Some very nice hotels and villas – I heard there are waterfront homes selling for a million dollars in Bukavu. The water was so clear, you could see the bottom of the lake in places, before the wash from the chopper ruffled the surface. I looked and didn’t see any bones.
Doug: Maybe they’re covered with sediment now… something for future archeologists to unearth and puzzle over the machete marks on the bones. A million bucks for a house? I’ll wait until I can get something like that castle in Rhodesia on the Mozambique border I should have bought during the war there. That was a 100-bagger, as it turned out. Oh well, my whole life would have been totally different – an alternate reality.
L: So, again, why is it that you’re more positive on Africa’s prospects now than in the past?
Doug: Well, there are two ways you can look at the future of Africa. One is that when they have these wars that last decades, it changes the local culture and engrains bad habits in the people that can take a long time to get rid of. The other view is as you said: after a certain amount of such stupidity, people get tired of it and start acting more intelligently.
L: Is there a historical example of a country "cursed" with great mineral wealth and actually benefiting from it – in the sense of the whole society achieving a higher standard of living, rather than just the thieves in control of the government?
Doug: The only ones – and this may sound biased, but it’s just a historical fact that people would do well to think about – are societies that were offshoots of Anglo-Saxon culture. The America that was (before they turned it into the United States), Canada, New Zealand, Australia.
L: Why would that be? The Protestant work ethic?
Doug: That’s part of it. I think the ideas of the Enlightenment era – specifically the classical liberal ideas that so influenced the likes of Jefferson and Franklin – combined with the "rugged individualism" imposed by frontier life had a lot to do with it. The concept of English common law was a big factor. Ideas matter. Actions flow from ideas.
Of course, Argentina didn’t have the English tradition, but nonetheless was once dominated by ideas that enabled wealth creation, and it became one of the wealthiest countries on earth – though most of the silver that gives the place its name was actually in Peru and Bolivia. But that was over a hundred years ago, and the steady replacement of liberal ideas with socialist ones has been accompanied by a matching fall in prosperity, in spite of great natural resources. It’s no longer a place to start a business, but it’s a spectacular place to live… unlike Africa, which I view as a great place for merchant-adventurer type business, but not so great as a place to live.
L: Well, Africa is no bastion of free-market thinking – this analysis doesn’t seem very hopeful.
Doug: Perhaps not now, but when people are tired of old ways that not only don’t work and periodically lead to genocide, they may open up to new ideas. Many good people there – like my friend Leon Louw, who runs the Free Market Foundation – are looking for what works, and the continent has improved immensely. Markets work. And there certainly are abundant opportunities for entrepreneurs there.
L: It is indeed a very good sign that such organizations are cropping up all over Africa. Thompson Ayodele has done a very good job with his Initiative for Public Policy Analysis in Nigeria, as has James Shikwati with the Inter Region Economic Network in Kenya, and my friend Kofi Akosah with his Africa Youth Peace Call in Ghana. But would you really encourage Westerners to try their luck in Africa?
Doug: As we discussed in our conversation on starting out or starting over, if I were a young adventurer, I’d go to Africa, even more so than to Latin America or the Orient. The skills and experiences and connections you have – ordinary and offering no particular advantage in the US – would be extraordinary and of great advantage there. And the more obscure the country, the better: I wouldn’t go to South Africa or Kenya, which are relatively developed. There are fortunes to be made in really backward and troubled places. Maybe Sao Tome, or Guinea Bissau, or Guinea Conakry. Maybe Cameroon, or Gambia, or Benin.
L: Maybe Burundi? I stopped there on my way to the DRC this time – I confess I’d never even heard of it before.
Doug: I first heard of it because I collected stamps when I was a kid. But yes, that’s the sort of place I mean.
L: By the way, on my previous trip to Africa, I stopped in Togo, which you’d asked me to drop in on…
Doug: Really? How was it?
L: It was much nicer-looking than I expected, for a place so far off the beaten track that almost no one even knows it exists. But maybe I should have known that was a positive sign; if it was in the news, that would almost certainly mean there were bad things going on. Slowly winning the struggle for prosperity is not newsy. When I got there, I saw a typical West African country, but with a lot of visible wealth in the form of nice real estate around the capital city.
I also stopped in Rwanda on this last trip, and it too looked cleaner and more well-maintained than I expected. I found that very hopeful – a sign of a focus on economic progress, rather than picking fights with neighboring countries.
Doug: I’d like to go to Togo some day, it being one of the relatively few countries I haven’t been to. I just want to check it out and see what makes the place tick… I remember its postage stamps too.
But, we should also mention that North Africa is something of a region apart, with its own political dynamics. It also has mineral wealth, particularly in hydrocarbons. Perhaps we should remind our readers of our conversation on the Arab Spring, which is the main trend to be watching in the area.
L: Sure. We should also say something about South Africa, which is still one of the wealthiest countries in Africa, and a destination for many investors’ dollars, especially in the natural-resource sector that we focus on.
Doug: Yes. In spite of that wealth, both in terms of one of the single richest natural resource endowments in the world, and one of the highest per capita GDPs in Africa, I have to say I don’t think the place is safe for investors – and it’s getting worse by the day. We do not invest in any South Africa plays – not for ideological reasons, like those who opposed apartheid – but because of the country risk. The people running the show are not just thieves; they are so hostile to enterprise, they’ve taken the place from producing over 60% of the world’s supply of gold a couple decades ago to less than 12% of world gold production today. There’s a high risk of nationalization in the country, if not force majeure in the form of violent chaos. South Africa is a powder keg with a lit fuse of unknown length – but it’s lit. I have lots of friends and relatives there and things seem mellow at the moment, especially in Capetown, which is one of the prettiest places on the planet. Then again, the whole world is at the edge of a financial precipice at the moment.
L: Okay, so if South Africa is on its way down, is there a place in Africa on its way up that you’d invest in?
Doug: Maybe Zimbabwe – I might have to go back there. Perhaps I could be persuaded that it has bottomed. It might have, now that it allows people to use whatever currency they want. Mugabe is on his way out, although African dictators seem to have preternaturally long lifespans. This could be the time to get in cheap – especially if I was interested in living there… which I’m not. The problem is keeping physical control of your property. It’d be highly speculative, but cheap is the key. I’ll buy anything if it’s cheap enough. At a low-enough price, the downside becomes negligible – the potential reward becomes vastly greater than the apparent risk.
L: "Cheap enough" trumps even country risk. That applies to some of our investments in Africa plays; they are discounted for being there, which creates acceptable risk/reward ratios.
Doug: Yes. You can lose everything, investing in Africa – but then, increasingly, you can lose everything investing in the US… say, if someone finds a piece of wetlands on your farm or whatever nonsense they come up with next.
L: Okay, so for investors, the bottom line is that there are opportunities, but serious due diligence is required – preferably via boots on the ground – and by waiting for the perfect pitch in terms of a price low enough that the probability of a loss pales in comparison to the possibility of a win.
Doug: Exactly. And if you’re of a certain age or mental inclination, then Africa is the closest thing to a wild frontier left on the planet, a place to go and seek your fortune. But enter at your own risk.
L: Very well, then. Thanks for your insights.
Doug: I just don’t want to hear from anyone’s lawyer if they wander into a war zone and don’t resurface for a decade…. Talk to you next week.
L: Until then, take care.
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