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I was fresh out of college and working at my first job, selling medical insurance to businessmen in Washington, D.C.:, one of my prospects was an Israeli entrepeneur named Jehuda Ben-Jehuda, who turned out to be an old Africa hand. Even then, I had an abiding interest in Third World countries, so I pursued the subject with him. One thing, he said that impressed me was, "Mr. Casey, if you go to the Gold Coast, spend a few years, and stick your nose into everything you can; by the time you leave you can have 5% of everything going into the country, and 5% of everthing going ot of it." I never took his advice, although I have since visited over half of the world's 220 countries, and lived in seven. But my recent visit to Ghana (which used to be called the Gold Coast before it became the first African colony to become independent in 1957) underlined that Ben-Jehuda knew what he was talking about. There's no doubt the opportunities there now are as great as they were years ago.

Like every country on the continent, without exception, when independence came the "natives" took over the government and proceeded to treat it like a magic cash cow which could not only be milked around the clock, but made to supply filet mignon for dinner every night besides. Huge public works projects, burgeoning bureaucracies, punitive taxes, nationalizations, and onerous regulations became the order of the day. These countries were transformed from peaceful, prosperous gems to hellholes where political rhetoric became a staple in the diet, replacing ordinary food for most people.

I've spent a lot of time in tropical Africa over the past few years, for a number of reasons. This time it was at the invitation of the Accra Polo Club, to engage in a series of marches under the sponsorship of General Tire, American Airlines, and a number of local businesses.  Winston Churchill once said, "A polo handicap is an automatic entree into every society in the world", and he was right. In the two weeks we spent in Ghana, we met most of people who move and shake the country. Photo ops, nightly parties, a State dinner. Even Stevie Wonder (who lives in Ghana half the year) came to one of the games.

Are there any relevant opportunities I can relay to you as a result of this pleasant junket?   Absolutely - but they're not for everyone. Presumably, however, that's why you subscribe to this letter ["The International Speculator,"] and not Money magazine, which specializes in regaling its readers with things everyone but the chronically ignorant already knows. And, unfortunately, things which everybody knows aren't worth knowing.

Third World investing, revisited

Over the last few years, I've tried to draw attention to the extraordinary returns available from investing in Less Developed Countries (LDC's). Most people can understand that LDC's offer far higher potential returns than are available in the developed world. But contrary to popular belief, they offer far lower risk as well. That's true for several reasons.

First, relative reisk is a function of price. That's another way of saying that it's a lot smarter to risk $1 with a resonable prospect of making $10 than it is to risk $10 with a prospect of making $1. Asset values are so cheap in much of the Third World (because of decades of capital flight, endemic corruption, nationalizations, socialism, and grotesquely pathological misgovernment) that they can almost seem "free" to someone from a developed country. 

Second, the fact these governments have already run their economies into the ground has actually reduced absolute risk; although they're slow learners, most have actually learned something from the experience. Unlike advanced countries, which are still on the slippery path leading to the gutter (e.g., look at the loony, tired old Bold New Ideas now emanating from the Billary White House) the LDC's are now forced, by dire necessity, to lay out the red carpet to opportunity seekers.

A few examples

Making a zillion dollars in a country like Ghana is potentially much easier than making it in the U.S. That's because you have unique experiences, connections, knowledge, and capital that - while they're commonplace here - go a long way in an LDC, where you're automatically a big fish in a little pond. (On the other hand, smart people from LDC's should move to advanced countries, where they can gain the capital and experience they need to improve their stations. It's a perfect arbitrage, where everyone wins.)

Here are just a few business ideas, to pique your imagination.

Hotels - All three of Accra's first-class hotels experience near full occupancy, and at a room rate of $100 or more per night; international class hotels and restaurants charge international class rates worldwide, regardless of their low costs. One acquaintance of mine is putting in an apartment/hotel, with multiple bedrooms, a kitchen, and office facilities for the increasing numbers of foreign businessmen spending time here. It will cost him $10,000 per unit, including furniture; he'll get all his capital back in less than a year. Perhaps you should buy a few as condos from him, and have them managed in a rental pool.

Oil refinery - Mobil built a $150 million refinery, and then abandoned it during the bad old days. An acquaintance is buying it for $1 million, getting a loan from the World Bank for $15 million to renovate it, and should net about $10 million per year thereafter.

Residential property - An excellent house in Accra (the type a wealthy person would live in) can be bought for about $80,000. But it can be rented for about $2,000 per month, meaning it's fully amortized in just over three years. This is a lingering consequence of decades of no construction, and nonmaintenance of existing properties.

Resort properties - Ghana never experienced wholesale nationalization of land; most of the country is owned by local tribal units, and can be purchased from them. The beaches are among the best in the world, and eventually they'll be filled with European tourists. Right now, most are totally empty and pristine. Another aquaintance, who can read the writing in the sand, is going through the tedious efforts necessary to buy them.

The list could go on and on. Ghana is typical of the opportunities in Africa, but each country is a world of its own. And most places aren't nearly as mellow and investor-friendly as Ghana.

One place I've always heard horror stories about, for instance, wherever I've traveled on the continent, is Nigeria. The corruption is so ingrained, and crime so endemic, that the place is a legend even in Africa.

Uniformed police, or thugs impersonating them (perhaps a distinction without a difference) regularly ask visitors for their passports for "inspection", and then dissappear with them, to be sold in the thriving market for stolen papers.

One common scam is to get a visitor in without a visa, pretending he's "special", and then shaking him down for $10,000 to avoid imprisonment for illegal entry.

Visitors can plan their lives around having their baggage pilfered at the airport, having things stolen from their rooms even in good hotels, and likely being mugged on the street. The best story (I'm assured it's true) is about a British Airways 747 that had its engines stolen overnight while the crew slept. This dystopia of nearly 100 million people is not the best place for a novice to gain experience.

Then there's Zaire, perhaps the world's leading kleptocracy, where Mobutu has personally appropriated virtually every penny of the $20 billion the country has received from the West since its bloody independence in 1960. Even though the Army is currently on one of its periodic episodes of looting, possibilities exist in Zaire, and returns on capital are very high. A fine house in Kinshasa would cost about $60,000, and rent for about $2,500. You can get good title to 100,000 acres of rain forest for about $100,000.

The Ghana Stock Exchange

I could go on and on with Old Africa Hand stories. But I'd need a book to cover all the countries. Perhaps I'll update The International Man next year, after my upcoming book, Crisis Investing II: The Rest of the 90's, comes out in June. But Ghana is clearly a country that hit bottom at least a couple of years ago, and is making a strong comeback. One indicator of that is the existence of the Ghana Stock Exchange, formed January 11, 1991.

"Emerging markets" have been all the rage over the last few years, in form of closed-end funds; we've had excellent luck with Korea Fund and Brazil Fund. But the available funds deal, almost necessarily, with secondary (but welll developed) markets. There are, however, a couple dozen very small tertiary markets as well, in places like Paraguay, Tunisia, Zimbabwe, Peru, and Ghana. They often present excellent value. Ghana certainly does.

Their exchange is open two days a week, for about an hour. During that time, brokers sitting around a small round table match incoming buy and sell orders. Volume of trading is small, as in tiny - typically only $50 or $100 worth of a given company's shares trade in a session. Values, therefore, have almost no relationship to market prices. This (like all tertiary markets - or the NYSE for that matter) is a place where you must look at the underlying value of the business, and then pretend you're Warren Buffett, buying a company as a business, in disregard of its market price.

There's actually extensive information available on the 15 companies currently traded in Accra, published by the exchange. (Send $10 for the Ghana Stock Exchange Handbook, Kingsway Building, Kwame Nkrumah Ave., P.O. Box 1849, Accra, tel. (233-21) 669908, fax (233-21) 669913, and $5 to Databank, the local equivalent of Standard & Poors, for a copy of their Stock Exchange Fact Book, Tower Block, Pension House, Private Mail Bag, Ministries Post Office, Accra, tel. (233-21) 669110, fax (233-21) 669100). [Escape Artists will note that we have links to the Ghana Stock Market as well as every other stock market in the world on our website in our Stock Markets of the World section.]

About half the companies were privatized by the government, which owns from 20% to 40% of their shares. The others were always private. Soon the government will be privatizing its half of Ashanti Goldfields, which is shortly going to a million ounces of production per year, with as much as 100 years of reserves at that rate. Inerestingly, Africa and South America used to touch (several hundred million years ago) where Ghana and Surinam now are. That explains the similar geology, and huge gold deposits in both areas. I'll keep my eye out for Ashanti, which will also trade in London. The other half is owned by Lonrho, a company I can't get a grip on, since so much depends on Tiny Rowland, its founder.

I got to know the management of one listed company, SCOA, a French outfit that's been in Ghana since 1917, kselling cars, textiles, household items, and industrial equipment. It employs 350 people, nets 12 million cedis on revenues of about 3 billion cedis (the cedi is currently about 600 to the dollar, and is losing ground at about 20% per year), but has a market cap of only 400 million cedis (10 million shares out, at 40 cedis per). A quick analysis shows it selling at over 30 times earnings - not very interesting. But its market cap is less than 15% its turnover - a very low ratio, showing that margins might be improved radically. What is really interesting is that the company owns a bunch of real estate, acquired decades ago, and carried on its books at cost. That property would be worth about 3 million cedis if it was liquidated, which means that you can buy the company for 15% of what its real estate alone is worth, and get the business for free.

Other examples are Guinness Ghana, a brewing company. It's a consistent payer of dividends, now yielding 5% (but 12% last year). Or Mobil Oil Ghana, selling at two times earnings, and typically yielding from 15%-30%. Or Standard Chartered Bank Ghana, which typically yields about 10%, and sells for three to six times earnings. At time, shares of many firms are available for anywhere from one (not a misprint) to three times last year's earnings.

I didn't check out all these outfits, but they range from cheap to unbelievably cheap by traditional measures, like P/E ratios and dividend yields.

But the real value is almost always likely to be in their real estate holdings, as with SCOA. Why are they so cheap? Lagging perceptions, which I explained earlier, is the major reason. Very few foreigners visit the place (I needed four photos, had to fill out a sheaf or papers, and get a bunch of shots to make the trip) and, most of the locals don't understand stocks, and thos who do have no sense of urgency. Most investment funds flow into the government's debt, which is also traded on the exchange.

As the chart above of some leading issues shows, share prices in cedis have gone basically nowhere for the last two years. Meanwhile, the cedi has lost roughly half its value against the dollar. But the real assets of the companies, and their earning power, have gone up in real terms as the economy has liberalized. At some point, there will be a price explosion.

Stock prices will go up radically as Ghana - already one of the most liberal countries on the continent, and by far the freest in West Africa - liberalizes even further. If I was of a mind to do so (but I have other fish to fry), I'd take Ben-Jehuda's advice. He'd be as right today as he was back in 1970, even though the economic environment has changed totally since then. Be advised. Whether this remains academic data, subject only to cocktail party banter, or the basis for making a bundle is up to you. If you have a son or grandson looking for opportunity, this type of thing can beat an entrance level job - or getting an MBA.