Zambia

I first visited Zambia in 1985, largely as a matter of curiosity. The

country was in a very bad way. Nothing worked. Just poor and bedraggled. The

only bookstore in Lusaka, on Cairo Road, the main drag, had absolutely

nothing to sell but some dog-eared pamphlets on Marxism. I wanted to visit a

game park, but was informed it was impossible unless I had made arrangements

from outside the country. I couldn't even rent a car. I do remember visiting

a statue of a native breaking his chains that was promoted to me as a

showpiece. There it was, sitting in an empty, dusty field, surrounded by

wind-blown garbage-clearly the final destination of the Zambian Road to

Socialism.

 

Even so, Zambia was a lot better off than Tanzania (where, even at the best

hotel in Dar Es Salaam, I had one light bulb in my room, which I had to

transfer from the bedroom to the bathroom for light, no soap, and a

washcloth-sized towel). Zambia wasn't as exotic as Tanzania-in fact, it's

not exotic at all. But although exoticity is something I'm partial to it's

irrelevant to something's merits as an investment.

 

Zambia was in much better shape than most other countries on the Dark

Continent at the time for two reasons: 1) it actually produced something the

rest of the world wanted, namely copper, and 2) the government, under

Kenneth Kaunda, was about a standard deviation less corrupt than the African

norm, and several orders of magnitude less corrupt than that of its neighbor

to the north, Zaire. In other words, the money generated by the mines, was

mostly dissipated on foolishness, as opposed to stolen outright.

 

Notwithstanding those two advantages, the trend in Zambia was straight down

from independence in 1964 until 1991, when free elections were held for the

first time in 27 years, and Kaunda was replaced by Frederick Chiluba.

Chiluba has embarked on a program of privatization and free-marketization,

and the results are apparent everywhere. The stores are well-stocked, people

are friendly, and the statue I mentioned now has flowers planted around it.

All this in spite of the fact that copper production has fallen from 700,000

tonnes per year in the 60s to 400,000 today. And even that downtrend is now

reversing, although it takes longer with a highly capital intensive industry

like mining.

 

I would have met with Chiluba, but his campaign for re-election was in its

last two weeks; so it was just impossible. I also would have had a meeting

with Kaunda (known as KK throughout Africa), but he was out of the country.

Unfortunate timing on my part.

 

Throughout Africa two groups- the Lebanese and the Indians, depending on the

country in question- control almost all the commerce. In Zambia it's the

Indians. Wherever you go, it's just a fact of life that those who emigrate

from their native land are smarter and more entrepreneurial than their

stay-at-home countrymen. It's also true that emigres stay in touch with each

other, and tend to work together, forming benign mafias. This has served the

overseas Chinese very well in Asia, and it's the same story with the Indians

in Africa. Unfortunately, because Africa has mired itself in socialism and

nationalism for the past two decades, the Indians haven't been able to

prosper as much as they might otherwise.

 

But however unfortunate for those who were there at the time, this offers a

tremendous opportunity to those who arrive on the scene today. Especially if

they have capital. While in Lusaka we stayed at the Podmozi, the city;s best

hotel. The nine story building was sold by the government to some of Dil

Gujral's associates for $2 million a couple of years ago. It now runs 100%

occupancy, charging international prices, but incurring expenses geared to

local levels. Even in Lusaka, a good worker is paid only $100, or at most

$150, a month; in the boondocks, the figure is one-third that. The Podmozi

is probably showing a net return of 100% on investment annually.

 

This type of thing is not unusual now in Africa in general and it's

absolutely the case in Zambia now. The country is wide open, desperate for

capital. Having run up $6 billion in debt to agencies like the IMF and the

World Bank over the last 30 years, the government is selling everything both

to generate capital, and to ensure the assets are run in a businesslike way.

Of course my advice to them is to continue privatizing, but to default on

their debt to these criminally misguided entities which, by making loans

available, have done as much to impoverish the Third World as any dictator

(see the April of xx issue).

 

In any event, the situation is awash in opportunity for those with the

enterprise and capital to take advantage of it. The two most pregnant areas

are mining and farming. Zambia is the size of Texas- 250,000 square miles-

but with only 9 million people. It has a much better climate than Texas

(being generally on a 3000-5000 foot plateau), and a lot more subsurface

water for irrigation. As you fly the country up its central corridor from

Zimbabwe in the south to Zaire in the north, one thing you notice is the

effects of an increase in rainfall, from a semiarid 20 inches per year to a

temperate 50 inches per year, made evident in the vegetation. Another thing

you notice is scores of little villages with straw huts, in the middle of

nowhere, and people living pretty much as they did in primeval times.

 

POST MORTEM 9/1/00

Zambia remains one of the better countries in Africa, but still realizes

only a tiny fraction of its potential. Chiluba has, predictably, become more

and more corrupt over time - but he's still a vast improvement over Kaunda in

overall effect.

 

A word on cobalt

Up until World War I, oxides of cobalt were mainly used as a coloring agent

for glass, ceramics, and paint. Now 80% is used in its metallic form, as an

alloy. What makes the stuff special, indeed unique, is not just its high

melting point (2723 F), but the fact it retains its magnetic properties up

to 2050 F. It's heavily used in turbines and jet engines, some of whose

parts are up to 65% cobalt. Ten to 30% of the metal in high speed drills,

and other tools requiring hardness and abrasion resistance, is cobalt. In

essence, cobalt is critical in the manufacture of hi-tech alloys and

permanent magnets. And here's some completely irrelevant trivia, as long as

we're on the topic. Vitamin B12 contains 4.3% cobalt, and is the only

vitamin to contain a heavy metal.

 

You may recall the 'strategic metals' boom back in the early 80s, when all

the world was aflutter with the prospect of running out of raw materials, in

particular those coming from politically volatile parts of the globe. Zaire

is one place that truly defines the word 'volatile,' and at the time

produced almost 60% of the world's supply. In 1980, when the commodity mania

peaked in January, cobalt hit almost $50 a pound. That's the equivalent of

over $100 today. The hucksters of the day (few of whom, I'm convinced, could

even find cobalt on the periodic chart) were right that it is an essential

hi-tech metal. But those prices are ancient history. It's been as low as $3

in recent times. You might want to read Chapter 3 of my 1982 book Strategic

Investing for more on the subject.

 

So where's the price of cobalt headed? Over the last 15 years, worldwide

production has varied from 20,000 tonnes to 50,000 tonnes per year, the

fluctuation due almost solely to what happens in Zaire. It's currently at

around $24. My guess is that the price will be stable to higher for the next

couple of years. Then cobalt produced as a nickel byproduct in Voisey's Bay

will come on stream in 1999, and the market will be flooded with the stuff.

Over the long term there are millions and millions of tonnes available in

the high grade manganese nodules that cover large stretches of the ocean

floor. But due to the perverse Law of the Sea Treaty, nanotechnology (see

Chapter 35 of CI90s) will probably drop the cost of all raw materials to

near zero before the nodules are ever mined.

 

My conclusion is that the cobalt price is going to be a big plus in the

short run, but a big negative in the long run for Colossal's cobalt

operations. The important thing, therefore, is that they're producing it

now.

 

POST MORTEM 9/1/00

 

The price of cobalt has fallen to around $11 a pound. After Voisey's Bay

(which is in Labrador, Canada's answer to a Third World country in most

ways) gets into production, and the civil war in the Congo ends, the stuff

is on it's way to $4.

 

Note

That our new President is Bill Clinton comes as no surprise. Pathetic old

Bob Dole never had a snowball's chance. I'm just disappointed that Harry

Browne garnered only 500,000 votes; it tells me that Americans are in a

lower psychological, intellectual, and spiritual downspiral than even I

imagined. The bright side, however, is that we had the lowest voter turnout

since the 20's. Clearly a lot of people didn't want to endorse either of the

two leading bozos. I certainly have a hard time, even in my blackest humor,

believing that anybody did anything besides vote against the person they

disliked most. It's hard to conceive of anyone actually voting for either

candidate.

 

But, if the truth be known, I'm pleased Clinton beat Dole for several

reasons. One is that my college class (Georgetown, (1968) will again have its

reunion (the 30th) at the White House. Another is that there's a very high

chance Bill and Hillary will be indicted for any of a myriad of felonies. It's

about time a sitting U.S. president was impeached and jailed. Another is

that if the economy and the stock market collapse while Bill's in office,

perhaps his cockamamie outlook on government will be blamed for it. And

lastly, Clinton is a lot more fun to watch than Bob Dole, tax collector for

the welfare state, who is simply... pathetic.

 

Thinking of our next President (that is, after Al Gore serves the rest of

Clinton's term), I'm almost certain who it's going to be. Next month I'll

have a description of the man, his character, and his shockingly

ill-conceived yet popular views.

 

POST MORTEM 9/1/00

Well, I was hoping Bill would be impeached for something more substantial

than that silly Monica affair; afterall, who didn't already know he was both

a rounder and a liar?

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