The Africa Boom

I contributed the following article to Dr Marc Faber’s Gloom, Boom, and Doom report in January 2014. It was an updated version of the argument my colleagues and I at ETM Analytics had been making to clients since around 2012. It was a warning to be careful of a coming bust in African economies and markets.

GBD -- The Africa Boom

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Email me for the password. (The duplication of chart 2 & 3 in the report was the editor’s error).

At around the same time (December 2012), The Economist ran its Africa Rising cover;

And Renaissance Capital analysts published The Fastest Billion (November 2012).

If one invested in this Africa rising view in November 2012 by adding money to the Market Vectors Africa ETF, you’d  have wiped out 30% of your capital in USD. The exuberance had become a little irrational. If you bought in late 2012 and managed to sell at the 2014 peak you could have picked up at most 9% in USD.


The time you should have been buying Africa was back in 2000 (when Jim Rogers said the time was right in his book: “Adventure Capitalist”). Africa was an option on a developing commodity boom. Such a buying time will come again, but my sense is we’re not there yet. There are some opportunities across the continent, but they are few and far between.

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That last post about online gambling was sponsored

I’ve done it before as it covers some of the blog’s maintenance costs, but this was the first time I was asked not to specify it was a sponsored post—and it’s gone a little pear shaped. First, Powa FM asked to interview me about it, and then I learnt that Moneyweb has lifted the entire article from my blog. And it’s on their front page!

I wasn’t expecting that.


I’ve also just learned that some of the facts are incorrect, and that online gambling isn’t about to be legalised. Statement from DTI below. Thanks Heather for bringing this to my attention.


DTI statement follows casino association warnings and proposed launch of a legalisation bill by the Opposition.

 The South African government’s Department of Trade and Industry has reacted to warnings on internet gambling issued earlier this week by theCasino Association of South Africa, and the news that a member of the Opposition is preparing the launch of a fresh online gambling legalisation bill (see previous InfoPowa reports)

In a statement Friday, the DTI unequivocally advised that the government is not considering the legalisation of online gambling, and warned Internet gambling operators that they will be prosecuted if found offering the genre to SA gamblers.

“Online gambling, or what others refer to as remote gambling, is not allowed in SA, and the National Gambling Board together with other law enforcement agencies will act on this illegal activity with immediate effect,” the statement makes clear, adding that the activity remains illegal, and any person offering or operating such a business is committing an offence.

“Perpetrators, whether operating an illegal establishment or participating as individuals could be liable to a fine of up to R10 million and/or 10 years in jail,” the DTI warned.

“Online gambling is not desirable and the DTI has raised its objection to the proposal by the Democratic Alliance [the official Opposition] to legalise online gambling.”

“There are a number of social ills associated with gambling, especially online gambling which occurs in unregulated and unsupervised locations.  Other forms of gambling that are allowed in SA take place under strict supervision in locations that are designated for such activities.

“In our view no amount of control will adequately curb the harm that may be caused to South African citizens by online gambling, hence we reiterate that it must remain a banned activity.”

The DTI statement urged members of the public to report online gambling and any other form of illegal gambling activities to the police.

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Online gambling finally to be legalised in SA

[UPDATE: Apparently reports that online gambling is about to legalised is false. Reported DTI statement here]

Remote or online gambling in SA is finally set to be legalized. For those that aren’t aware, The Remote Gaming Bill; championed by shadow trade minister Geordin Hill-Lewis, is likely to reach and be passed by Parliament in the coming months. Until now, South Africans had only been able to gamble in brick and mortar establishments, or use online sportsbooks. Under the terms of the 2004 National Gambling Act all “interactive” online games like Poker, bingo and casino were completely outlawed. As a result, the local industry struggled to grow, and foreign online gambling jurisdictions boomed.

While a few establishments do offer online gambling to South Africans they exist in a precarious position. South African customers face the constant worry that the sites may be shut down, with their funds, and some banks will not process deposits to those sites. However estimates suggest that tens of thousands of South Africans have active gambling accounts; with the RTG (RealTime Gaming) network attracting the bulk of them .

South Africa’s current gambling market is by no means a poor one; according to PwC the sector generated almost R2 billion of taxes on R16.5 billion of revenues last year. However, the current law allows for only 40 casinos to be licensed within South Africa; and 37 are already operational. The market showed just 0.6% growth last year, which is perhaps why industry lobbyists and legislators are looking to new ways to raise tax revenue from gambling. Creating future growth, the report suggests, is dependent on operators investing in current properties and expanding their facilities.

Under the Remote Gaming Bill, the responsibility for licensing new online casinos will be split between states and the National Gaming Board. Currently bookmaking licences are administered on a provincial level, with state governments handling applications for online licences. Under the new system, the NGB will take a bigger role, with provinces inputting “advice”. Hopefully this will lead to the development of a strong, centralised regulator; which can effectively perform its duties to protect players and prevent crime.

Land based casinos are now being presented with a lucrative opportunity to expand their brand online. Take the example of the UK’s gaming market; where the biggest online operators (William Hill, Paddy Power and Coral) all had thriving chains of high street bookmakers before opening online sites. Although high street operators are at no particular price advantage (software and games tend to be licenced from large development firms); but the trust factor and existing customer base can prove a real competitive advantage in a developing market.

Given that the remote gaming market is incredibly globalized, South African casinos might well seek to profit from building up a customer base overseas. Some countries are experimenting with a Point of Consumption (PoC) tax on gambling products, meaning operators pay tax on revenue in the jurisdiction it comes from. However, most countries tax sites in the jurisdiction they are based, and South Africa’s low gambling taxes might allow home operators to offer more competitive odds.

We may soon witness the birth of a new, huge and fiercely competitive online gaming market in South Africa. Much remains to be discovered as to how the government will licence, tax and oversee online casinos; but with some careful design the new industry should prove a boon to both operators and their customers.

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Holiday from hell in J-Bay as Eskom collapses

Feel so sorry for folks who went to Jeffrey’s Bay over Christmas and New Year’s this holiday, a very popular summer holiday town on South Africa’s east coast near Port Elizabeth. The town experienced the resulting chaos of a grid collapse this holiday.

After three days of power outages, several parts of the town didn’t have water supply; without power sewage pumps shut down, and raw sewage spilled onto some beaches; restaurants couldn’t sell to customers because point of sale terminals weren’t working between the down fixed phone line and power outages, and in addition to this restaurants had to throw away rotting food as their generators couldn’t power all the refrigerators.

As the name of the Herald article suggests, it really was a holiday season from hell.

Take note of what happens and where the opportunities lie when grids collapse and towns are left in darkness. It’s likely coming to your town soon, might as well take some precautions for the inevitable.

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On the decline of Joburg and SA

Here’s an except of an interesting article by Victor Davis Hanson titled The Destiny of Cities. In reading his discussion of the events that drove the decline of former great cities like Pompeii or Florence, and events that could lead to the same decline of New York today, it’s clear to me that these factors–capital flight and overly redistributive taxes–are already happening in Johannesburg, and Cape Town is clearly benefiting from this trend. When you look at South Africa as a whole, other major cities like London, New York and Hong Kong are benefiting from what’s going on in South Africa.

What could actually end New York, at least as we know it, is commercial failure. The chief danger would be a massive flight of capital, the sort of fate that doomed Renaissance Florence as a banking center. By the seventeenth century, the riches of the New World, Europe’s bustling Atlantic seaports, and Florence’s internecine tribal feuding finally made irrelevant the Medicis’ traditional role as the financial hub facilitating eastern Mediterranean commerce with Asia’s overland spice and silk routes. When Florence’s commercial income ran out and its bankers left, the Florentine cultural renaissance ended. By the eighteenth-century age of the franc, guilder, peso, and pound, it was hard to remember that between 1300 and 1500, the florin had been Europe’s benchmark gold coin.

Examples abound of capital fleeing cities and taking culture with it. Long before the Reconquista drove Islam out of Iberia, eleventh-century Muslim Córdoba—increasingly ill-governed and burdened with court intrigue—tired of its allegiance to free thought, no longer welcomed freewheeling commerce, and became an intolerant Islamic backwater where books were burned rather than produced. Timbuktu, a sixteenth-century crossroads between northern and western Africa, declined as a center for learning after slave traffic and the gold and salt trade routes shifted. Money drives art and culture, and without the ongoing creation of prosperity, higher pursuits die on the vine.

If New York’s financial class fears that New York is becoming a completely redistributive city, it will likewise begin to leave. Already, the combined state and city income-tax rate is 12.62 percent for the highest earners, and in 2011, if Congress adopts President Obama’s tax policies, the combined federal, state, and local tax bite on each added dollar of income for those earners will exceed 50 percent for the first time in 25 years (see “Empire of Excess,” Winter 2010). New York’s increasingly confiscatory and redistributive policies, then, could drive capital to lower-tax southern or midwestern states eager to have it. There is nothing to prevent Charlotte from taking over New York’s preeminent banking role, or Dallas–Fort Worth—America’s fastest-growing urban center—from becoming the nation’s corporate capital. Atlanta, Denver, and Seattle could just as easily divide up much of New York’s cultural leadership.

Capitalists might also flee America’s climbing tax rates and regulations and re-create New York abroad by outsourcing its financial disciplines to Frankfurt, Zurich, Tokyo, Shanghai, and Singapore. The resulting impoverishment back home, in which spiraling municipal deficits would lead to calls for higher taxes on the fewer remaining high-income earners, would leave New York’s current attractions—musical performances, literature, theater, museums, foundations, and universities—without the high-octane financial fuel that propels them.

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Commodity bear market for another 15 years?

Interesting charts from commodity strategist John LaForge at Ned Davis Research. He looked at boom/bust cycles of commodities in the past 214 years, and found that the average commodity bull market lasted 16 years, and the average bear market following the ultimate peak 20 years. If this cycle repeats again today, general commodities could be in a bear market for another 15 years (if 2011 was this cycle’s peak). I recently wrote I don’t believe the bear market will last this long this time, and also believe that agriculture prices and gold could outperform general commodities even in a general commodity bear market.

commodities boom and bust

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Merry Xmas: SA petrol price on its way back to R10/liter

As long as government doesn’t take the opportunity of a collapsing oil price to pass-through a fuel levy to cover eTolls and bail out Sanral (don’t share the idea with them), petrol prices may be heading back to levels last seen in 2012. That means a price of around R10 a liter for 95 ULP petrol in Gauteng could be on the cards.

The global oil price in Rand terms has fallen around 40% from the levels of late 2013 and most of 2014.


And the pump-price follows this global oil price pretty closely, although is less volatile, because it is regulated. As things stand there’s around a R1 per liter price decline coming in January.



Lower CPI inflation, cheaper to run your and Eskom’s generators, and likely to keep the Reserve Bank in a friendly mood with unchanged interest rates for longer.

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Africa Eurobonds collapsing

It’s been quiet here on the blog, but as quiet as it’s been here I’ve been busy at work. I’ll try pick things up a little on the blog, but keep to twitter-length posts.

African Eurobonds are taking an absolute beating at the moment and the proximate cause of this collapse seems to be the oil price collapse where the Brent crude price has nearly halved in the last few months.


My thoughts on the –at the time, still coming– Africa Eurobond collapse are outlined in this report I sent to African Alliance clients on October 15, 2014.

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