February 3, 2006As many of you know, I encourage international travel as a way to broaden one's perspective both as an individual and as a professional investor. In fact, several of my analysts, along with other personnel at Westwood, have traveled abroad to foreign countries, including China and India, as a way to gain insight and a fresh perspective on the world.In early January, before the rush of earnings reports and corporate events, my husband Bill and I explored the western coast and central heart (Congo) of Africa. The countries we visited were full of diversity in their customs and traditions, and I found many of the people I encountered along the way to be inspirational for the courageous way in which they live their lives. I will be attempting to process what I witnessed for a very long time. Some of my observances as they relate to my professional life follow:
1. Even in the most remote rain forests, competition for natural resources is intense. There are countries that have natural resources and there are countries with significant financial assets who need those resources. Chinese and Indian companies are strongly present in these African countries and are actively devising long-term commitments for their needs. I was again reminded that we (the United States) are no longer the center of the world or the only driver of world economic growth, and we as investors must consider the interests of other countries, not just ours, to determine where the resources will flow.
Transporation in Mali2. Pressure on traditional ways of life (both the endearing and appalling) is also intense. In the Central African Republic, for example, loggers who once worked the forests here have moved on to other more dense forests. Jobs that were lost by the move were not replaced by new industries and the traditional way of life, hunting, could not resume because the forest and all its inhabitants are gone. Today, most people begin consuming palm wine in the morning and continue until dark. The sources of stability (democracy, wealth creation and rule of law) have not been cultivated and the citizens of this and other countries are suffering. Obviously, this was not a well thought out, long-term strategy.Fish Market in Elmina, Ghana
3. Accra, the economic center of Ghana, has seen giant changes in the recent past. Its position as a trading hub has brought increased wealth and with it a large increase in personal cars. There has been no corresponding increase in roads or other infrastructure, which means that their traffic jams put Los Angeles to shame. Meanwhile places such as Mali continue to use donkeys, camels and the river as their primary means of transportation. In all these countries we saw very little spending by governments into the basic infrastructure that keeps cities functioning well. This situation will have to be dealt with in order to cope with the growing demands of the population.
4. In the Republic of South Africa, business is strong. The people are optimistic and very conscious of the unique status they have on the continent i.e. good and modern infrastructure, rule of law and democracy. Ten years ago, these things were not taken for granted, nor are they today. Challenges do continue as they continue to work to bring citizens into the middle class through better education and access to the economy. Drugs are a new, but virulent factor.
Participants in the Volvo Ocean Race Docked at Cape Town, South Africa
5. The Republic of Mali is a fascinating country. Very poor – really staggering poverty – but rich in its history. In contrast to the modernization of Ghana, Mali maintains its traditional way of life. It is home to many cultures such as Taureg and Dogon that have remained nearly unchanged for a thousand years. The trade routes along the Niger River and through the Sahara still exist. It is truly amazing.
My trip was exciting, exhausting and way off the path of Western (and Asian) linear moves toward industrialization and wealth creation. In so many ways however, it reinforced the “Flat-World Curve” thesis that we have been talking about these last six months. As globalization increases, the interdependence among our countries increases and governments in countries like China and India will continue to feel pressure to create and maintain stability within their own countries while simultaneously allowing wealth creation for their citizens. They see that the key to stability is economic prosperity. These governments will spend to build out the infrastructure to support their population and wealth growth. This creates huge demand for and pressure to spend on the acquisition of resources that create and maintain the comfort of their people. As governments work to maintain and pursue these goals, we will see their significant resources follow and flow into countries like those in Africa that have the coveted resources from timber to crude oil.
Many of the cultures that I visited hold creation myths and worldviews that do not go beyond the next village, the next planting season, the next child. We are a small part of Africa today. Will we be part of Africa’s tomorrow? Is wealth creation through industrialization part of Africa’s future? It was a gift to be able to meet and observe so many different cultures. It will have me questioning conventional wisdom in new ways, for some time to come.
Susan M. ByrneChairman, CIO
