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Investment Guide

An Uneasy Partnership That may be necessary

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Decisions made by major rating agencies come and go. The more they change, the more they stay the same. Standard & Poor’s has been the latest credit bureau to cut South Africa some slack, in not cutting the sovereign to a non-investment grade. Similar leniency has been shown by Fitch and Moody’s over the past 12 months. In the following year, they may however not be that patient, demanding more tangible progress with reforming the labor market, political cohesion and overcoming the challenges that poorly managed state-owned enterprises (SOEs) pose to economic growth.

Admittedly, no one likes being told what to do. That applies to decision makers in the public sector as well as in the private sector. South Africa continues to flirt with the makings of a recession, where another slip on the credit rating ladder could open up the possibility of borrowing funds from the International Monetary Fund (IMF). While this conjures up images of a bailout, it may not necessarily be as bad as it sounds. Loans come with prescribed conditions to them. The biggest will be boosting GDP growth to a more respectable level, from the lethargic level of 1% it appears destined to grow by over the next few years. The détente that was brokered this year between the government and leaders in the private sector, to halt a further slide in the country’s rating, is significant. It shows the two sides being poles apart on many things, but that the success of the economy is not the preserve of only one side.

Public-private partnerships (PPP) have emerged as a credible tool in meeting infrastructural development challenges, by harnessing the strengths of the private sector and government. The private sector provides technical know-how, management and finance for any key infrastructure project. The public sector offers security for private sector investment and also guides the PPP process through a legal and regulatory framework. A special purpose vehicle is established by the private sector, which raises a combination of debt and equity to finance the project. This structure is particularly important for SOEs; the financier will look more at this structure than it will at the cash-strapped public entity.

This framework is internationally recognized and respected. It encompasses a spending program of more than $58 billion, stretching over the following three fiscal years. Much success has already been seen with Africa’s largest PPP project –the Gautrain Rapid Rail Link, which came in around $1.7 billion. Renewable energy projects have also been successful.

However, the Infrascope project, financed by the World Bank to investigate how prepared and willing 15 African countries were to implement key PPPs, found that the process had challenges. Projects can be difficult to execute, legislative and regulatory processes can be tricky, and a high level of financial skill, sectoral knowledge and familiarity with the different structures which PPPs are needed. International investors also observe that bids have a large element of non-price factors, such as the promotion of black economic empowerment, job creation, socio-economic development and industrialization. Foreign bidders say that these local factors are too demanding and play a larger role than they should. Local stakeholders, such as trade unions, are also skeptical of PPPs, mistaking them for privatization of government assets and wary of the job losses which could accompany such projects.

It is not enough that South Africa’s GDP is growing by less than 1%, nor is it enough that reforms in the labor market have been insufficient to dent a 27.1% unemployment rate. It is also not sustainable that around half of South Africa’s population receives some form of welfare and dependency benefits.

How long it takes to rebuild the economy is difficult to say. It will take at least as long as the 33 consecutive months at which the annualized rate at which the South African Reserve Bank’s leading indicator has contracted.

Amid all the uncertainty, the one mantra which remains steadfast is that politics leads economics.

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Economy

Cryptocurrency for Africans

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George Gordon is on a quest to revolutionize the financial system. The director of Africa Master Blockchain Company talks digital currencies, blind risks and board games.


What is this new African cryptocurrency you are offering?

Where the majority of current digital currencies are based on speculative models, AfriUnion Coin (AUC) and the AfriNational Tokens (ANT)are designed for a transactional purpose allowing international payments, remittances, foreign direct investment as well as day-to-day transactions at local retail stores and other outlets. While the option for speculative trade is available with AUC, the focus is not around that.

Each African country will have a specially-designed ANT which will allow users to pay for goods and services and bills easily through completely digital means without requiring any bank account. AUC and ANT will be fully interchangeable to one another and there will be no fees for the user.

It’s the natural next step for digital finance from mobile banking which most Africans are accustomed to. The ability to freely have the power to send and receive money locally and internationally will allow the freedom of choice and spending power many Africans don’t have currently.

What is your own investment philosophy?

I am a gambler! I believe in taking risks and putting things on the line. That being said, blind risk or whimsical guesses don’t get you very far. Always acquire enough information to understand to a reasonable level what the thing you are planning on investing is or how it works and then trust your instinct and gut feel.

What advice would you give entrepreneurs wanting to invest in blockchain?

First, do some research in terms of what the blockchain technology is being applied for or created in terms of its application to an industry or project. Thereafter, check the white paper for the design of the platform as well as its functionality and applicability to what it is trying to achieve. If it aligns with your personal investment rules, then go for it,however, remember that blockchain is continuously evolving and thus you need to explore outside the usual and standard.

First cash-less, now card-less. What is the future of online banking?

If we are looking into what is currently science fiction, I would say the future is digital contact lenses that will be able to connect you to all your social media accounts, internet, news as well as make payments by just looking at QR codes or specialized barcodes to approve and accept payments.

Now, realistically we are not far off from such innovation and technology, but for the time being, I think the next step is scanning of QR codes at retailers and having the transaction automated from your wallet to the retailers digitally.

What is your most prized investment and why?

My mind. I believe that the work I have put into developing my mind, and continue to do so every day, is the number one investment that I have ever done. It allows me to look at things in a unique perspective as well as provides me with the tools to push boundaries and create new opportunities.

Money, success, fame? Which is most important to you?

I would have to say success… because it is most likely going to bring the other two as well, right? But success in the form of starting something and letting it grow and succeed and knowing that something new exists because of your efforts.

What do you spend your money on mostly?

Board games. I love board games and believe it’s a fantastic way to expand your mind as well as have fun with friends.

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Investment Guide

King Price CEO On Why He Invested On Insurance

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King Price Insurance’s CEO Gideon Galloway, who built an insurance company in South Africa worth over $226 million in six years, talks investments, industry trends and how self-driving cars will change the entire car insurance landscape.

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Economy

Offering The American Dream

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Gar Lippincott and Daniel Ryan of Atlantic American Partners were in South Africa recently looking for high-net-worth individuals wanting to invest in the US.

It’s a warm spring day in September, and Gar Lippincott and Daniel Ryan have just arrived in South Africa. It is Lippincott’s first time in the country, and he is jet-lagged.

A little over two months ago, he was booked to fly here from the United States (US) but was turned back at immigration.

“At Atlanta airport, the lady looked at Daniel’s visa and let him through and she looked at my visa and she said ‘I am afraid you can’t get on the plane because you have to have a blank page on your passport’. I said ‘I have three blank pages’ and she said ‘no, it’s supposed to be the one that says visa on it’. She said it’s the rules in South Africa so I had to sadly go back home… now when I was coming, I was told that’s not an issue anymore so I am happy they have made traveling into the country easier,” says Lippincott.

With a brand-new passport, he’s here with Ryan looking for people who want to invest in the US in exchange for a green card.

Lippincott, the Managing Partner of Atlantic American Partners, says he has always been keen on South Africa for its growth opportunities and prospects.

“From what I understand, the things that are causing short-term decline in the economy in South Africa are set up to provide long-term growth and hopefully people will understand this,” he says. Ryan, the company’s Managing Director of Emerging Markets – Africa, agrees: “I lived in Malawi for 12 years and South Africa is still considered the shining one throughout the continent. Even with all the problems, everyone still wants to come here because of the opportunities.”

According to an AfrAsia Bank report, South Africa comes second to Mauritius in boasting the highest number of high-net-worth individuals.

These are the kind of people Ryan and Lippincott target through their work at Atlantic American Partners. The company has real estate investors and professional private equity fund managers that manage money for banks, insurance companies, and pension funds. In addition, they help people get US green cards and ultimately US citizenship through the US government’s EB-5 Immigrant Investor Visa Program.

“Basically we look for people who want to move to the United States and we help them do so legally by investing and the nice thing is, with our program, they are also able to get a nice return on investment,” he says.

According to Lippincott, for a $500,000 investment that creates 10 jobs for American workers, you could get a green card in about two years and be a US citizen in about six or seven years. “Twenty seven countries have an investor visa program but with most of them, it’s essentially a fee you pay, or you need to be actively engaged in the day-to-day operation of a business. For example, you invest $1.5 million in Australia, but you need to hire employees and generate a certain amount of revenue. One of the biggest advantages with our program is you actually invest the $500,000 into a fund. We act as a trustee of that money and within five to seven years, they get that money back with a bit of return on investment and you are a permanent citizen in the US.”

Atlantic American Partners invests the money in real estate developments like hotels, apartments and student accommodation.

“What’s nice about the program is it doesn’t only cover the investor; it covers the spouse and children under 21. Our biggest family was a Hungarian family with seven children so they got nine green cards for $500,000,” says Lippincott.

The company says it has had positive response in South Africa. “Two months ago, we were here and we had scheduled six presentations for 100 people and we ended up speaking to 450 people. Most were business people, people worried about the economy, people worried about the political future of South Africa and people concerned about the education future of their children,” says Ryan.

According to Lippincott, despite the news of the clampdown on immigration, the US economy is booming and will perish without immigration. In the era of Donald Trump and his anti-immigrant views, that’s heartening news indeed.

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