Zanzibar, Dar es Salaam, Mombasa, Mogadishu, Mumbai, Mangalore…all trading cities along the fabled rim of the Indian Ocean. These eastern African cities thrived between the 12th and 18th centuries, with ships sailing in and out on monsoon winds. They will thrive again on the tailwind of a long-term bull market in commodities.
“From here in Africa, we sailed with ivory, mangrove, coconuts, tortoise and cowrie shells,” says an old sailor named Bwama Shafi in a dusty, old issue of National Geographic. “From Arabia, we brought dates, whale oil, carpets and incense. From India, pots, glassware and cloth. Trade was our life, you see.
“The wind in our sails made us rich,” the old seadog explained, “just as it did our ancestors. In the season, dozens of foreign dhows would arrive — booms 100 feet long or more, great sails white against the sky. And at night! Hundreds of dhows big and small anchored in the harbor, their cooking fires shining like stars in the night.”
Africa had good harbors and plentiful fish and lots to trade with India and Arabia. Ties between India and Africa, especially, strengthened under the common influence of Islam and the Portuguese. (Portugal colonized both Goa and Africa’s coast.) Africa is also home to a large population of ethnic Indians, which helps bridge trade further.
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These historical ties and old trade routes are reviving once again. In the spring, Delhi hosted the first Indian-African summit. Trade between India and Africa tops $25 billion per year. Nigeria, for example, accounts for 10% of India’s crude oil imports. But China’s trade with Africa is a lot more — $55 billion annually. The reason for this boom in trade? A hunger for the natural resources of Africa.
Africa increasingly is right in the middle of the global quest for natural resources. It has the highest ratio of light and sweet crude in the world — the best-quality stuff you can find. And most of its oil — some 83% — comes from large fields that produce at least 100 million barrels per day. Meaningful amounts of premium oil in large fields explains why Africa attracts so much investment. Between 2002-2006, the big oil companies tripled their spending in Africa.
The recent discovery of oil sands in the Congo by Eni, a big Italian oil group, lends more credence to the idea of Africa as the future of global oil supply. Eni hasn’t said how much resource its vast acreage might hold. But the Financial Times reports early samples suggest that “the area as a whole could hold more oil than Eni’s entire reserves of seven billion barrels of oil equivalent.” That would put Eni’s resource on par with the huge Kashagan fiauction, India’s state oil company bid $321 million for an Angolan oil block. A Chinese oil giant bid $725 million. Guess who won?
It’s not just about oil, either. Africa holds tremendous amounts of natural gas, minerals and natural resources of all kinds. Much of these resources reside in places that are business-friendly. But there is often a fragile social fabric, which seems ever on the brink of civil war or a coup, or worse.
In Niger, for example, you will find some of the world’s largest deposits of uranium. Niger plans to double its output over the next several years.
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Companies from all over the world — Australia, Canada, China, India and France — scramble to lock down claims. But the uranium deposits lie in the ancestral home of the nomadic Tuareg. The Blue Men of the Desert (so-called due to the color of their favored indigo dyes) return to old ceremonial grounds to find red flags marking uranium deposits. The result is predictable — battles between the Niger army and Tuareg fighters, and bloodshed.
Yet the rewards dangling before the world’s eyes are so great. Many companies will walk the edge of that precipice for a shot at glory. Many of the companies I have recommended to the readers of my investment letter, Capital & Crisis, operate in Africa.
Ryszard Kapuscinski, the late journalist, once wrote that Africa was too large to describe. Africa was “a veritable ocean, a separate planet, a varied, immensely rich cosmos” (The Heat of the Serengeti Plain, 1962). “Only with the greatest simplification,” he wrote, “can we say ‘Africa.’ In reality, except as a geographic appellation, Africa does not exist.”
Scio-economically, Africa remains as “non-existent” today as it did when Kapuscinski penned these words in 1962. But when it comes to natural resources, Africa not only exists, it occupies the center of the map. eld in Kazakhstan. Eni potentially doubled its oil reserves with this one African find.
Right now, Africa produces only about 12% of the world’s oil output. By 2012, that could be 30%. No wonder, then, that it has become such a competitive battleground for the oil companies. I