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It isn't easy for Masoud Alikhani to check on his investment.
The Iranian-born Briton owns a facility in Mozambique that turns jatropha, a hardy, drought-resistant plant, into biodiesel. An October visit starts with an 11-hour flight from London, his home base, to Johannesburg, South Africa.
From there he jumps into a four-seat Piper Seneca II for a wobbly three-hour flight to Maputo, Mozambique's capital. On landing at Maputo's airport, where soldiers stand guard on the roof, Alikhani spends an hour wading through the bureaucratic muck of visa clearance and immunization checks.
Then it's back on the plane for a 90-minute flight along the Indian Ocean coast to the province of Inhambane. At the 7-Eleven-size airport there, Alikhani is met by his brother and business partner, Said, for a 90-minute drive past wayward livestock and random brush fires to the village of Inhassune. At the end of a long dirt road, on a vast tract of reclaimed scrubland, sits the Alikhanis' massive biofuel complex. They try to visit every two months.
The brothers are among a growing cadre of intrepid investors looking for treasure in the 30-plus sub-Saharan African nations stretching from Mauritania and Somalia in the north to the continent's southern tip.
There's no blueprint for this kind of investing: The best opportunities must be dreamed up and then created from scratch. The Alikhanis saw upside in a fallow cotton plantation. In Nigeria, Emerging Capital Partners, a private-equity firm from the U.S., last year helped acquire an abandoned factory in hopes of supplying the continent with desperately needed fertilizer. South African microlender Blue Financial Services, energized by an investment from Wall Street last year, now has 171 branches in nine countries, with offices opening soon in Rwanda, Cameroon, Swaziland and elsewhere.
The final frontier for investors
All told, at least $2.6 billion in private-equity deals have been struck this year in the region (excluding more-developed South Africa), nearly seven times the 2005 figure.This is the investing world's final frontier, so undeveloped and impoverished that it makes other extreme emerging markets like Colombia and Vietnam seem like marvels of modernity. Airports open and close arbitrarily. Roads are often unpaved and clogged. Gasoline and diesel are scarce and rolling blackouts common. The medical precautions are even more forbidding: Traveling to mosquito-infested interiors requires a round of injections and weeks of anti-malarial pills that often induce hallucinations.
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In many ways, Africa's economic situation seems hopeless. Though $625 billion in foreign aid has poured in since 1960, there has been no rise in the region's per capita gross domestic product, notes William Easterly, an economics professor at New York University. What's more, from 1976 to 2000, Africa's share of global trade dropped to 1% from an already negligible 3%. The United Nations' scale of human development, which considers health, education and economic well-being, ranks 34 African nations among the world's 40 lowest. Thus far, foreign aid hasn't made a dent.
Greed, however, might. Thanks to the global commodities boom of the past few years, sub-Saharan Africa's economies, after decades of stagnation, are expanding by an average of 6% annually -- twice the U.S. pace. And like bees to honey, investors are swarming into the region in search of the enormous returns that ultra-early-stage investments can bring.
Blue Financial, for example, has already netted its early private-equity backers a ninefold gain thanks to the 385% rise in its stock since its October 2006 initial public offering in Johannesburg. Emerging Capital Partners has bought all or part of 42 African companies this decade and cashed out of 18, with gains on their investments averaging 300%. "The money we can make is matchless," says Emerging Capital Partners CEO Thomas Gibian, a former Goldman Sachs (GS, news, msgs) banker.
The region's public stock markets are attracting foreign investors, too.
Stocks in resource-rich nations such as Botswana, Nigeria, Zambia and many others are rising to record highs. In recent months, investment bank UBS AG (UBS, news, msgs) and others have published thick reports on Africa's investing opportunities, hailing as a major virtue the fact that markets there don't move in tandem with those of the rest of the world.
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Africa: The next investing frontierThere's plenty of risk but also potential rewards.
Demand for African stocks is so robust, in fact, that it has created a bottleneck. Because these markets are tiny and illiquid -- Zambia's total market value is just $2 billion -- foreigners can't pile in all at once. Those who don't want to wait on the sidelines must find their own opportunities away from the stock exchanges.
"The private-equity skill set is really in demand here," Gibian says. His firm has invested more than $400 million in sub-Saharan Africa in 2007 versus $325 million in the previous six years combined.
Of course, these investors may well be courting disaster. International monitors consistently place the region in the lowest tier of their rankings for business friendliness. Some governments, such as that of Zimbabwean President Robert Mugabe, expropriate assets outright, while others bleed businesses dry over time. If those problems don't do lasting damage to an investment portfolio, a commodities crash certainly would. A mass exodus of investors would snuff out Africa's flickering progress in a hurry -- not only its GDP growth but also the burgeoning informal economy that isn't counted in official statistics: backyard and roadside businesses that have suddenly arisen to tap the continent's growing income.
Continued: African leaders welcome investment
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