T. Rowe Price bets on rising of Africa

September 16, 2007|By JAY HANCOCK

T. Rowe Price's newest mutual fund has invested half its assets in Africa. If the object of making money is to buy low and sell high, the Baltimore-based company seems to have the first part right.

Each African lives on $2,000 per year, on average. Africa accounts for 13 percent of the world's population but less than 4 percent of its income.

As the rest of the globe has boomed since 1970, Africa has grown poorer, a victim of war, disease, disastrous leadership and hostile Western trade policy.

Price has bet on a change. Its Africa & Middle East Fund is sinking money into Nigeria, Kenya, Egypt, South Africa, Morocco, Bahrain, the United Arab Emirates and their neighbors.

The fund, says Vice President Joseph Rohm, an expert on Africa, is "the last piece" in the company's global investment puzzle.

Rohm compares the Africa & Middle East Fund to Price's Emerging Europe & Mediterranean Fund.

That one started in 2000, when Russia, Romania and other such places were still limping after getting mugged by communism for a half-century.

A thousand dollars sunk into the Emerging Europe Fund then has appreciated by 23 percent a year and is worth $4,200.

Such results are unlikely from the Africa & Middle East Fund. But no matter how well investors do, a fund from the world's richest region aimed at the world's poorest region is good news. Third World "micro-financing" is all well and good, but developing nations also need macro-financing from the likes of Price.

This is the first mutual fund of its type in the United States, says Price, which is not exactly right. Bethesda's Calvert Group floated its New Africa Fund in 1995 only to end the experiment in a few years after it attracted little money and delivered poor results. Let that be a warning.

But someday Africa will rise, and Africans will take their rightful place at the table of rapidly developing regions. Whoever invests money at the right time will make a lot more of it. The question is whether the time is now.

Price claims it might be. Rohm points to faster growth, improved political stability and booming commodity prices. And, he says, "for the first time in a long time you're seeing governments spending on infrastructure" such as roads and buildings.

Loan forgiveness by Western governments has allowed Africa to cut its external debt in half. Soaring oil prices have driven annual growth as high as 8 percent in Nigeria, which is swimming in the stuff. Diamond revenues have helped the Botswana stock market triple in four years. Jubilee Insurance, star of the Nairobi, Kenya, stock exchange, has increased 20-fold in five years.

In fact, Africa has done so well since 2000 that you wonder if the Africa & Middle East Fund really is buying low. Maybe the arrival of T. Rowe Price marks the peak of the gold rush, like the cabdriver who buys WorldCom.

"We definitely think there's further to go," says Rohm. Africa's gains, he says, have come from a low level. The fund intends to be highly selective, holding a few dozen companies at most. At the moment it's focused on banks, construction outfits and phone companies: Egypt's Orascom Construction, for example, or Nigeria's United Bank for Africa.

And it has diversified by investing in places such as Qatar, Oman and the United Arab Emirates. Stock markets in those countries have declined from their peaks, and their economies include growing sectors other than oil, Rohm says.

True, but Abu Dhabi hoteliers and bankers still will succeed or fail on petrodollars. Same as the Lagos cell phone companies or road pavers. In fact, a bet on the Africa & Middle East Fund is largely a continuing bet on the worldwide boom in oil, metals and farm products that began four years ago.

Africa's most valuable assets are its farm fields and mineral veins. If prospects for commodities fade, so will prospects for the fund and the continent.

But high commodity prices are only the beginning of what Africa needs. It needs education, health care and security. It needs to conquer malaria and AIDS. It needs democracy, wise leaders, property rights and functioning courts. It needs the developed world to stop blowing billions on domestic farm subsidies and start buying agricultural products from Africa.

And it needs foreign investment from Baltimore and elsewhere. That's a long list, which sheds light on the challenge that Price faces. May the enterprise rain benefits on both Baltimore and Nairobi.

jay.hancock@baltsun.com

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