Why AFRICA is The FUTURE (for commercial business and infrastructure work)

By W. David Thompson: CEO Diversified Energy Corporation

The information below is consolidated from hundreds, if not thousands, of sources (books, white papers, magazine articles, internet articles, news programs) previously read by the author, and the work of many experts, including Dr. Stephen Leeb (author of The Complete Investor) and Harry S. Dent (master Demographer). The author has also made dozens of trips to many parts of Africa, many of them deep in the “bush”, to better understand opportunities there. The opportunities are vast.

But First, why growth rates in the “Developed World” are flat and slow:

The USA, Europe, and Japan are mature markets and also saturated with other competitors.
The USA has a huge internal business competition where margins are driven down into the dust, while its Government debt load is exploding beyond $22 Trillion and average wages have barely budged since 1984. The Government is borrowing roughly $1 Trillion a year (and climbing) just to operate. Soon, more than 25% of USA tax revenue will go to pay the interest on the bank debt. The USA will face a severe monetary crisis ahead as it eventually returns to “printing money” to try to dig its way out. The US financial system is headed toward an implosion…Although the timing is not known, it might not be far away in time. Strains will begin to appear as US debt approaches $30 Trillion, far more than the GDP, and as wages continue to stagnate, as they have since the late 1970s in inflation-adjusted terms.

Europe is very insular with regard to contracting, European Elites are arrogant, (France is a good example of this) and Europe has also basically become a “museum” for most activities. In monetary terms, Europe is in worse shape than the USA due to money printing by the European Central Bank and low demographic growth. Birth rates, which drive demographic growth, have fallen below replacement levels across most of Europe. This demolishes future new household formation in Europe (with the exception of mostly poor Islamic immigrant refugees, most of whom do not have high disposable incomes.) Household formations drive sales of not only homes and all that goes inside them and around them, but also most other commercial items and infrastructure needs.

For example, Italy, the “Old Man of Europe”, is dying on the vine now with the lowest native birth rate in Europe. Its native population is shrinking, while Italy has the third largest debt in Europe. Italy is teetering on the brink of financial collapse, as we have already seen in the “PIIGS” states (Portugal, Iceland, Italy, Greece, Spain). Absent a bailout from the European Central Bank (ie Germany and France) Italy’s banks would have already collapsed. The immigrants flooding into Italy are from the lowest working classes and are not adding substantial economic value.

Similarly, Japan is the “Old Man of Asia” and it is in full-scale demographic collapse. Its birth rate fell below replacement levels years ago and its population ahead will shrink dramatically (Japan as a country allows almost zero immigration). In 1992, China took away Japan’s low-cost labor advantage and its low-cost export market. Despite record low-interest rates and gigantic monetary stimulus and deficit spending for the Japanese economy by Mr. Abe, Japan has never recovered from the twin debacles of no babies and the breakout of China. The Japanese Central Bank now owns more than half of the Japanese public stock markets, which is actually crazy if you think about it. This essentially means that Japan has “back-door nationalized” its industries.

In 2016, using broad Exchange-Traded Funds (ETFs) as their investment vehicle, the BOJ was a top-five owner in 81 companies in the Nikkei Stock market. By the end of 2017, the Central Bank of Japan (BOJ) became the Number 1 owner of 55 stocks in their stock market. And the BOJ was a top-ten shareholder in 90% of the Nikkei 225. So when you compete with Japan, you are basically competing against the Government itself…

Why? If not, many of those companies would be at least stock-value-broke by now if not out of business.

The UK is only a shadow of its former self, having lost all of her valuable Colonial assets such as India and Hong Kong, having incurred staggering losses and debts in two World Wars, (yes that expense eventually catches up, as the USA will eventually find out…..) and with her most prized commercial assets now essentially owned by foreigners including Arabs, South Asian Indians, Chinese and Russians) who has already bought up almost every major UK Landmark?

Major sectors of the UK have long ago been de-industrialized or are no longer competitive, such as her mighty prior coal, steel, and manufacturing plants for everything. After all, it was their invention of the steam engine by James Watt in the 1700s that started the entire Industrial Revolution, but they eventually lost their edge… the UK began its decline (as did Spain, France, and Belgium) with the wars, and after losing the ability to suction money from Colonial conquests. For example, most people do not realize that for 100 years or so, every long-distance phone call originated in Africa had to pass through France, with the French collecting huge fees, until American entrepreneurs from companies like IDT finally broke the back of that colonial system of “taxes” using elaborate “call-back” schemes. The “Africa One” undersea fiber optic cable completely around Africa (which surfaces in almost every country) will put the death knell to that old French scheme.

These “European Colonist” countries are returning to their small population, small land area roots and they will eventually revert to museums and tourism, which in large part they already have… The UK North Sea Oil Bonanza of the 1980s is on a steep decline, (as is Norway’s North Sea offshore bonanza) and the UK is now returning to a net energy importer. Likewise, despite massive “Green” efforts, Europe is totally dependent on Russian oil and gas to function. Since many wars are ultimately about Natural Resources, it is easy to see why NATO is edging closer to the border of Russia, and why Russia is now running to build stronger defenses, and why Russia moved to protect her interests in Ukraine, particularly the vast 400-foot thick shale oil deposits under the Dombass region (largest in the world) and the massive untapped natural gas deposits. Newly-arrived Royal Dutch Shell (don’t forget they are really owned and controlled by Dutch Royal aristocrats) and Chevron were given one-way tickets out of the Ukrainian Dombass after the mini-war there. This is the reason why former USA Vice President Joe Biden’s son was camped out with his company in Ukraine prior to the war there – to grab oil and gas assets in the Dombass.

Germany and the rest of Europe are almost totally dependent on Russia for energy and that is why there were no sanctions allowed by Europe on Russian Oil and Gas by the United States, despite huge arm-twisting by the “Western Alliance” of Ms. Merkel, the leader of Germany – Europe can simply not function without that Russian energy, and everybody knows it. This is driving the politicians and neoconservatives and neoliberals in the USA completely crazy since this is something they can not control…..

This is also why Obama quickly enabled massive Liquified Natural Gas (LNG) exports, and for the first time since 1972, crude oil exports…despite decades of prior flat denials of industry requests to our Government to export these energy products ….When these export leverage tools became needed by our American Political Elites, objections a mile deep and ten miles wide were swept away in two weeks. US LNG export application papers that had turned yellow while languishing in US State Department export approval files, were literally yanked out of drawers and approved almost overnight. Our Government is well known for doing nothing, or doing things slowly. However, when our Government senses global leverage or political opportunity, she can move at lightning speed on massive scale. To this day, USA is working to convince UK, Germany, and the rest of Europe to buy more American LNG.

Almost everything in the UK now depends on the economic engine of London City, the central financial district, which is essentially controlled by foreign depositors. The UK very wisely made London City a magnet for foreign investors with an unwritten “handshake” promise: “Bring your money here, we will manage it for you (and take big fees….), and you can move here and we will keep you safe from your Home Government.” And by the way, We Have Nukes! This “Island of Stability” (my words) strategy worked really well for the UK for several decades and London was “The Place to Be” for Global Elites, with real estate values soaring exponentially, until the UK, responding to rough treatment of UK-sheltered ex-KGB spies Litvinenko and Skripal, politically turned on the Russians and spoiled the financial bonanza from Russia. Russian purchases of UK real estate have descended into a new Ice Age…and UK political interference into business and privacy became draconian. When the UK natives showed electoral support of “BREXIT” (departure from the European Union….) it created panic among the EU and the Global Elites, as they saw for the first time pushback from the underclasses.

Likewise, the recent “Yellow Vest’ protests by the “Working Class” in France, now spreading to other European states, indicates greater Nationalism and civil unrest ahead, almost exactly as predicted by Dr. Stephen Leeb about five years ago. The US Mainstream Media (MSM) has barely covered these major protests by the Yellow Vests, who are literally setting fire to big parts of France despite harsh French government efforts to repress them, as the MSM does not want to fan the flames of similar unrest in the USA

Therefore growth has stagnated in the UK, and all of Europe, more trouble is ahead there, and Europe is not a business target for us.

I believe that Russia will grow, be stable and prosper ahead, despite heavy USA and UK drove financial and trade Sanctions. Russia has a large landmass, vast and huge untapped natural resources, and a relatively (although also declining) population, a stable political system with little civil unrest, excellent education systems, and a rapidly re-strengthening military to defend her interests. Legendary USA-born investor Jim Rogers (who was #2 to George Soros), helped Soros “Break the Bank of England”, making Soros’ Fund $1 Billion in one day…. and who now lives in Singapore, recently said “Russia is now the place to invest. However Russia is now seen as “politically incorrect” (but not illegal in most cases) for USA companies to work in, or with, and elements of our Government have increased the “hassle factor”. We will continue to evaluate legal business opportunities with Russia long term.

China is still growing, but China is saturated with its own manufacturers and they are well known to steal ideas and IP and then use it to boost a competing company. The USA and China are headed toward “who is the bigger bully confrontations” over the South China Sea and Taiwan. We avoid work in China at this time, again to avoid the hassle.

Alternatively, Africa practically imports everything and has few domestic manufacturing or technology competitors or leaders. One can gain market share in Africa very rapidly with low business hassle factors..

Africa has the fastest-growing population in the world….by huge margins

Despite the ravages of many nasty diseases which cause many Americans to fear to go there, (like Polio, Ebola, and AIDS…) the population growth of Africa is BOOMING. All demographics showed by “World Experts” forecasting demographic “doom and gloom” always have a * with the footnote “Except for Africa”…. Africa so badly distorts global demographic statistics UPWARD, analysts almost always exclude it from gloomy global forecasts.

Africa has the fastest-growing “Middle Class” in the world.

That new Middle Class is now forming households at record rates and has the extra disposable income to buy products. Middle-class homes are selling like hotcakes across Africa as the entire population “moves up”…..reminiscent of the USA “move up “ home buyers in the early 1980s.

“Africa Needs Everything” (my saying):

The entire continent is underserved in electricity, water, sewer, roads, housing, large-scale agriculture, communications, goods of all types – essentially everything is needed in greater quantities. Madagascar (another prior French colony…) did not even have a central sewer system is its capital city of Antananarivo when I visited there in 2017. Raw and untreated sewage was piped to a lake in the center of the city, at least those that had access to the pipe…Many countries in Africa have electricity installation rates of 60% or less, and some are as high as 92% without electricity. The electrical infrastructure of these countries is pathetic and essentially mirrors the USA electrical grid of the 1920s and 1930s. Electrical grid development in Africa is 70 or more years behind developed nations, as one would expect with the last continent to “develop”. Most rural areas are not served. There is vast opportunity in African electricity markets, and just like Africa did in telephony by leap-frogging over physical landlines straight to cellular (Even working 500 km in the “bush” in Senegal, West Africa to install solar systems, we had cell service and more than 90% of Africans now have cell service, a hyper-growth industry since we first noted it would become so in 1996..), there are vast opportunities for solar power with high margins.

The “spreads” of African margins are vastly higher than some “safer” Middle Eastern markets and Developed Country margins. We consistently find African electricity markets that will pay 13 to 25 cents per kWh for solar power project PPAs (Power Purchase Agreements). More remote areas of Africa will pay up to 30 cents per KWH. Why would they pay this much? – They are already paying 25 to 50 cents per KWH NOW for diesel-Genset produced electricity (much of that is being financed by George Soros at nosebleed rates, with Madeline Albright as his deal-finder, leveraging her prior US Secretary of State contacts…)))

For example, until just about three years ago, except for oil and gas deals, traditional Western project financiers were not even found in the Middle East (and nowhere in Africa….), except for UK bankers who had local GCC (Gulf Cooperation Council) funds to re-invest. As margins compressed in global stock and bond markets, “almost free” zero-interest-rate money printed by the Central Banks of the US and Europe and then handed out to the Bankers and Elites began to chase higher-margin deals in the Middle East.

This resulted in a “race to the bottom” in Middle East project financing as, for example, big money chased UAE and Saudi solar projects. Two recent mega-solar deals in the UAE and Saudi Arabia priced out on state-sponsored bid tenders at only 2.9 cents and 1.9 cents per KWH on a long term 20 year+ PPAs. This is below the cost recovery point and these were ridiculous bids, where 50% of the investment recovery was based on “residual values” 20 years out or more. This strategy is more properly called “Suicide by Bid..”

Similarly, in the USA, wind projects have been competitively bid-in for numbers like 2 cents per KWH. These are formulas for business disaster. We see this in all industries when capacity is high, juicy jobs are few, contractors are hungry, and margins compress.

This tells us that the largest alternative-energy players are hungry in an over-capacity market and armed with almost zero cost money. We will not compete with them on a crazy unprofitable basis, but rather seek markets where they cannot compete as effectively, and avoid state tender deals altogether, and instead seek Public-Private Partnerships, where the profit margins are higher and there is no competition. MOST (not all) of those financiers and project developers are either AFRAID or too comfortable to enter the “Frontier Markets” where we work. We work in places where most Developed World people WON’T go, or DON’T go because they do not have to….or they CAN’T go, as they do not have a visit visa, and those are not always easy to obtain.

Housing

Housing construction is BOOMING all across Africa, and everything being built is often sold out before project completion. Most of this is cast-in-place reinforced concrete construction (cement, rebar, block, and stucco) Again, this is directly related to the booming population growth and the rapid increase in the middle class. People are flooding into African cities from the countryside and rural areas (just as the USA experienced from 1930 to 2008), creating acute housing needs in major cities and now suburbs. Local banks are financing these with mortgages.

This has created markets in everything that goes into a home of course, including doors, windows, roofing, glass, bricks, ceramic tile, electrical and plumbing fixtures – the entire gamut of products needed. Most of this has historically been imported from Europe.

African governments are now wisely incentivizing local factories which of course create local direct jobs, and create indirect jobs for local suppliers and services like trucking. Interior landlocked African countries like Mali already are receiving more than 1000 “18 wheeler equivalent” truckloads of goods per day by road from Senegal. HUGE markets lie ahead for those willing to move on these opportunities. Likewise, DRC Congo has HUGE opportunities in goods and trucking, but it does not even have decent ROADS yet. There are thousands of miles of DIRT highways still in use across DRC Congo, which is a nightmare for transport in the rainy season. The Chinese are building BEAUTIFUL four-lane toll roads all over Africa. During one trip to Uganda, I was driven on a stunning new four-lane road for at least 50 miles, built to global standards. This would have taken 5 years to plan and build in the USA. In Africa using Chinese contractors?…. 9 Months to completion!

Permitting and Approvals

Unlike the so-called “Developed World” where many established people “like it just the way it is” and all new projects are given extreme scrutiny that takes years, in Africa projects can be approved in weeks or months. One associate of the author is an Architect in Germany, She had previously worked ten years in the USA as an architect. She advises that “almost nothing can get done in Germany in less than three years” due to terrible over-regulation. Likewise, the 40-mile Century 105 Freeway in Los Angeles took more than 20 years to build out in the 1980s and 1990s, even though it had been “on the planning books” since 1955. The Chinese built the road described above through parts of Uganda’s second-largest city…..in 9 Months…

Africa is Super-Rich in Natural and Human Resources: Land, Water, Oil & Gas, Copper, Iron Ore, Cobalt, Diamonds, Timber, and so many other valuable commodities. And there is a huge population of low-cost workers who want to work. When well-developed, these will provide the basis for cash flow to purchased goods and services by the Middle Class.

Africa is Rich in Human Resources

Western and European visions of African labor are badly warped and wrong. Africa’s booming population is loaded with energetic, hard-working, aspiring young people. Wages are low in most cases ($5.00 to $7.00 per day for good workers). Many Chinese manufacturers are moving factories to Africa as the labor is lower-cost and harder working in Africa now than in Asia. I personally observed and worked with many African workers and they are eager and fast to learn complex skills, including installation of high-tech solar panels. We have no trouble recruiting and training all of the semi-skilled workers that we need. This gives us an advantage over Chinese companies, which employ Chinese imported labor almost exclusively, and are quite insular in their work camps, causing resentment in local African communities. All African countries that I visited expressed a desire to work with Americans rather than Chinese.

Africa is the least explored and least “leveraged” of all the Continents: If money is loaned or invested, or exports are done, they can be secured with tracts of land, minerals, timber, mines, ports, etc. In some cases, Sovereign Guarantees can be arranged and in some cases, large local insurance companies will provide backstops on projects.

Africa is significantly under-refined: The big international oil companies were happy to export Africa’s crude oil to Europe for more than 70 years, and never build end-product refineries in Africa. This left Africa highly dependent on Europe for refined fuels and kept the “value-added money” in Europe. A huge opportunity exists for Africa to leverage its oil and gas resources to benefit all. For example, many African countries currently import a large percentage of refined fuel products like diesel and jet fuel. South Africa alone imports 80% of its diesel and jet fuel. African countries now want to build local refineries. One can finance and build these plants and in return gather long-term local and Government supply contracts.

Clean Domestic Water and Farm Irrigation Water

We are presently working in this niche with little competition and there are tens of thousands of water drilling, dams, canals, pipelines, processing, storage, distribution, and irrigation project opportunities across the African continent. This opportunity will go on for the next 50 years or more, much as the US did from 1900 to 1950.

African Agriculture is Moving Forward and Has Huge Opportunities

Unlike many images on American TV of starving African children, Africa is fairly well-fed and increasing its agricultural production year-over-year. Many countries have programs to increase food production for locals. Almost free, and huge tracts of land are available to commercial-scale farmers from Governments in multiple countries in Africa. Most farming is still small-scale in Africa, (except for South Africa where HUGE sugar cane farms around Durbin and similar crop farms stretch on for hundreds of miles). There are unlimited opportunities in African Agriculture, including crops, meat animals of all types, chicken processing, and dairy products, most of which is grown a small scale or imported today.

Local Manufacturing

Local manufacturing is in its infancy in Africa. Again here the colonial powers preferred to manufacture in Europe and keep Africa as extractive raw materials economies. The French own the largest cement factory in Senegal (cement is a huge opportunity in developing economies) and reinforcing steel (rebar) is also imported.

CONCLUSION:

In conclusion, Africa presents the most commercial growth opportunities for the future, which can be captured and completed fastest and with the least commercial hassle. Africa is the fastest-growing, most underserved continent. It has vast resources in people and natural resources.

Africa Is the Future.
Other papers will address specific projects and financing.