The Investors' Guide: Secrets of Investing in the Developing World

By Kosmas Njanike

Build your knowledge on international investments as you enjoy reading this book. This book is pregnant with secrets and tips for investors and entrepreneurs, as it clears some mysteries often associated with investments in developing countries.

The book is useful to those looking for investment opportunities or has interests in Africa, Asia, South America and other developing countries on the globe. It seeks to `open eyes' of the reader on the investment and business opportunities in different countries on the timing, market entrance strategies, risk management strategies and other factors for considerations.

After reading this book your fear to invest in some countries and markets will be dealt with as the author explains the opportunities, threats, risk mitigation strategies and steps to be followed for one to make a successful business venture. Many examples and case studies have been utilized to help explain concepts and experiences in foreign direct investments (FDIs) on some parts of the world. The book sought to reveal opportunities in different developing countries and encourage those interested in creating wealth, business opportunities and jobs not to buy time but invest.

The Investors' Guide is a book that can be of interest to university students or ambitious young people with an entrepreneurial mind in developed countries who may have access to capital and a desire to create wealth for themselves mainly through technology transfer. Investors or multi-national firms who need to expand their businesses to any developing countries will also benefit from this book. The book reveals the huge returns that can be obtained on investments in different sectors in developing countries and this is a chance that one would not want to miss.

• Language: English
• Publisher: AuthorHouse UK
• Release date: Aug 16, 2013
• ISBN: 9781491800539

Kosmas Njanike

Kosmas Njanike started his career with BancABC and worked for CFX Bank for a number of years as a credit and investment analyst. The author also worked for the Reserve Bank of Zimbabwe as a Research Analyst. He has also worked as a consultant for a firm in Botswana.

Book preview

THE INVESTORS’

GUIDE

Secrets of Investing in the Developing World

First Edition

KOSMAS NJANIKE

THE BOOK OF IDEAS AND SECRETS

OF INVESTING IN DEVELOPING ECONOMIES

50500.png

AuthorHouse™ UK Ltd.

1663 Liberty Drive

Bloomington, IN 47403 USA

www.authorhouse.co.uk

Phone: [phone]

©

2013 by Kosmas Njanike. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

Published by AuthorHouse 08/09/2013

ISBN: 978-1-4918-0051-5 (sc)

ISBN: 978-1-4918-0052-2 (hc)

ISBN: 978-1-4918-0053-9 (e)

Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.

Certain stock imagery © Thinkstock.

Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

CONTENTS

Chapter 1:   Investment In Developing Countries

1.1 What Is Investment?

1.2 Why Invest In Developing Countries?

1.3 Investor’s Desire

1.4 Expectations Of The Beneficiary Country

1.5 Risks Common To Investments

1.6 Pulling Factors

Chapter 2:   Business Environment

2.1 Internal And External Environment

2.2 Characteristics Of Business Environment

Chapter 3:   Investment Destinations

3.1 The Risks Of International Portfolios

3.2 Get The Numbers Right

3.3 Investment Climate

3.4 Primary Production

3.5 Business Opportunities

3.6 Competitiveness

3.7 Stability

3.8 Local Climate And Business Climate

3.9 Openness To Regional And International Trade

3.10 Investment Prospects

3.11 Why Many International Investors Are Investing In Africa?

Chapter 4:   Government Policies

4.1 Investor’s Single Counter

4.2 Trade Policy And Regulations

4.3 Use Of The Country’s Endowed Resources

4.4 Types Of Business Organizations

4.5 Regulatory Environment

4.6 Africa Is Open To Business, But Not Any Business

4.7 Special Zones For Investment

4.8 Income Tax

4.9 Industrial Property Protection

4.10 Learning From Experiences

Chapter 5:   Business Partners

5.1 Find The Right Partner

5.2 Choose The Right Legal Practitioners

5.3 Be Compliant And No Shortcuts

5.4 Due Diligence

5.5 Mergers

Chapter 6:   Sources Of Finance

6.1 Finance Divisions

6.2 Sources Of Finance

6.3 Smes In Developing Countries

6.4 Large Capital Projects

Chapter 7:   Role Of Banks In Economic Development

7.1 Role Of Banks

7.2 Economic Theory

Chapter 8:   Financial Markets

8.1 Capital Markets

8.2 Money Markets

8.3 Regular Bank Lending And Capital Markets

8.4 Raising Funds On The Primary Markets

8.5 Capital Markets Transactions

8.6 Services On Demand In Ldcs

Chapter 9:   What An International Investor Should Know

9.1 International Investing

9.2 Tips For Foreign Investors

9.3 Investor’s Approach

9.4 Globalization Effects On Markets

9.5 Why Invest In Foreign Markets?

9.6 Risks Associated With International Investments

9.7 Costs Of International Investments

9.8 Types Of International Investment

9.9 Factors Affecting International Investors

9.10 Target Firm Valuation

9.11 Purchase Accounting

9.12 Dividend Policy

9.13 Climate Policies

9.14 Opportunities In Africa

9.15 Corruption And Investment

CASE STUDIES

Case Study 1.1 Raw Versus Processed Tobacco

Case Study 1.2 Processed Versus Unprocessed Diamonds

Case Study 1.3 Management Control

Case Study 2.1 Africa Is Welcome To Investment

Case Study 2.2 Africa Is Not A Risky Destination

Case Study 2.3 Opportunities In Emerging Markets

Case Study 3.1 Nationalization And Expropriation

Case Study 3.2 Investment Opportunities In Uganda

Case Study 3.3 Stock Exchange In Angola

Case Study 3.4 Invest In Kenya

Case Study 3.5 Investment Potential, Labour And Space

Case Study 3.6 Zimbabwe: Opportunities In Diamond Mining

Case Study 4.1 Violation Of Bilateral Agreements

Case Study 4.2 Investor’s Stance On Myanmar

Case Study 5.1 Opportunities For Investment

Case Study 5.2 Finding A Business In Nigeria

Case Study 5.3 Partnership And Access To Capital In Mauritania

Case Study 5.4 Testimonies Of Investment In Mali

Case Study 5.5 Sudhir Ruparelia, Uganda

Case Study 6.1 Jamaica—Loans Through Approved Financial Institutions (Afis)

Case Study 6.2 Projects In Bangladesh

Case Study 7.1 Financial Sector In Angola

Case Study 9.1 Foreign Investment Experiences

LIST OF FIGURES

Figure 1.1 Risk-Return Trade-Off

Figure 8.1 Capital And Money Markets

TABLES

Table 1.1 Developing Country Investments: Factors And Attractive Features

Table 3.1 Analysis Of Investment Destinations

Table 3.2 Why Invest In Developing Countries

APPENDIX

Appendix 1

Appendix 2

To Melisa and Blessed

PREFACE

This book was written mainly for investors in different countries who may be scouting or searching for investment destinations. It is also meant to equip investment managers with the factors to consider in their analysis for choices of investments in all economies. The book dwelt much on investment analysis in developing economies. Examples have been cited from Africa to Asia as the author desired to clear some of the myths surrounding investments in the countries in these continents.

With my experience as a Banker, Consultant, Lecturer in Risk Management, Treasury Management, Investment Analysis and Portfolio Management I saw it necessary to share my views and knowledge with domestic and international investors. Coupled with my extensive research experience over the years I discovered areas that need light for investors ought to be guided. Having been contracted with some Multinational Companies (MNCs) in doing their research grounds work in Africa and beyond, I noticed a couple of things that an international investor requires to know prompting me to write this book.

The book is interesting as the author seeks to give an anatomy of the investment environment common in developing economies. It therefore equips the investors with information on the dos and don’ts in managing their investments and ensuring that minimal risk is attained. This was also to instill investors’ confidence by protection of their interests as the knowledge gained in this book will help to mitigate and eliminate the conditions which adversely affect their interest. The book also seeks to mitigate, and eliminate the conditions which adversely affect the national public interest and the interest of investors.

The Investors’ Guide was written after discovering that investors may end up losing part of their investments or all of it due to reasons ranging from ignorance to political risk. Investors and multinational firms will this edition useful as they invest in new projects anywhere in the world. Investors, especially foreign ones need security on their ventures and at times they are exposed to takeovers, expropriation and change of policies or law just to mention a few. The Investors’ Guide is the right book to study especially when one needs knowledge on protection of interests.

This textbook will be very useful to scholars pursuing studies in areas of Commerce, Business Studies, Economics and Investment Analysis at professional, undergraduate and postgraduate levels. The Investors’ Guide will be handy as a manual to an entrepreneur and investor in the advanced world who is not abreast with the investment environment in the developing countries.

Contents are intended for the use of foreign investors who are largely unfamiliar with any developing country. It is designed to offer overviews of potential locations for investment, rather than constitute exhaustive works of reference or provide detailed practical instruction. The book, however, offers pointers to sources of further information in the private as well as the public sectors.

While every reasonable effort has been made to ensure that the information provided in this publication is accurate, no business or other decision should be made by the reader on the basis of this information alone, without a further independent check. Neither the author nor publisher accepts any responsibility for any such decision or its consequences.

ACKNOWLEDGEMENTS

I am indebted to my colleagues, family and business associates for some material used to compile data. A great many individuals and institutions have contributed to this project and to the production of this Guide. Space forbids me to mention them all.

I also want to take the opportunity to thank those most directly involved in the process leading up to this publication and without whose co-operation the book could not have been published. I cannot find words to express my gratitude to my wife Melisa who has the attitude and substance of a genius for her valuable comments in writing this book. These qualities have inspired and enabled me to complete this work. I also want to thank Bindura University Research and Postgraduate Centre for their contribution towards the final publication of this book.

Chapter 1

INVESTMENT IN DEVELOPING COUNTRIES

Whatever the mind of man can conceive and believe, it can achieve. Thoughts are things! And powerful things are that, when mixed with definiteness of purpose, and burning desire, can be translated into riches

Napoleon Hill

Many developing countries have varying capacities to grow their economies. Aggressive and visionary investors take advantage of opportunities in the resource endowed parts of the globe and in some cases when it seems not to make sense to invest. Unique and brilliant ideas can only be rated as such when one has been on the ground discovering and researching on possible areas to invest. Indeed profit may not be immediate but with proper planning and strategies it is certain that it will be obtained. One needs to see how some minerals and oil exploration began in the middle of nowhere that is in deserts, forests and seas. The same goes with discovery of golden opportunities in otherwise undeveloped countries on earth. As Christopher Columbus ‘discovered’ the new world by travelling or getting to a place, one can explore the developing world and discover new business, opportunities or markets. From my observation in Africa, parts of South America and Asia there are plenty of opportunities in virtually all sectors of the economy such that one may tend to think unemployment anywhere in the world is by choice or lack of discoveries.

Globalization has had varying impacts to individuals, firms and countries but it suffice to say that opportunities that have been brought are not being exploited by those who may be capacitated. Those who have attempted or done still leave great opportunities surfacing that again they are failing to explore. The technological gap between some developing and developed countries is appalling. Whilst the unemployment rate in some developed nations is on the increase, with some graduates even demonstrating against their governments of the day’s policies, opportunities for partnership and resource utilization go untaken or maybe ‘undiscovered’. With some basic things in the developed world being taken as luxury in the developing world an easy way of discovery is to think along technology transfer. Technology transfer can take different forms and one needs to strategize so as to optimize on the resources and opportunities available.

There are a number of ways of looking at investment but the two that the author is going to use are the investors point of view and the destination’s (i.e country). As a country aims to develop its economy that is to boost production, exploit its resources, create employment and so on, it may welcome foreign investors to augment their means of production. The much needed skills or capital may be scarce or unavailable such that the country may seek to attract foreigners to close the gap. The governments would want to work on their Gross Domestic Product (GDP) and improve the standard of living of its citizens among other achievements. Investors consider the factors that affect their business or risk of venturing into a project in a foreign land. In idea generation an investor needs to consider how a developing nation can achieve these economic and social objectives. On discovering the needs of a country you can then formulate strategies to invest in opportunities available or creating opportunity yourself. It is true that where some people see darkness or hopelessness others see light and hope. It is not enough to rely on what other people have written or discovered about a country or situation but one needs to explore and discover.

The need for growth may be centered on individually which would be the best or favored approach by any nation. Using locally available resources and skills with minimal dependence on foreign ones is what any government would want but in many circumstances it is not the case. Development may as well be achieved in cooperation with one another and, with meaningful assistance from the more developed countries of the world. The discovery of opportunities by foreigners is very common in developing countries, with some countries having lost fortunes such as gold and diamonds as these would be mined without the knowledge of the government. The majority of developing countries seek to attract investments or foreign investment (FDI) as opportunities exist as capital and expertise may be limiting progress. Some governments may plan to attract investment angels but policies on the ground actually scare away investments.

This book seeks to explore the factors and processes that any investor or prospective investor to a developing country ought to consider and analyze in making decisions before and after committing their funds. An investor has to have an insight into the prospects, regulations, policies, risks, and so on of the investment destinations. Being a small or large business an investor cannot afford to lose therefore. It makes it imperative for such an investor to be equipped with knowledge on common factors affecting business in the developing world. The following are common questions in investments that need answers:

•   What should an investor expect?

•   What opportunities exist in the developing economies or world?

•   How can you exploit and maximize on opportunities available in a market or economy?

•   What does an investor look for?

•   How is the foreign exchange regime in remitting profits?

•   What are the common problems encountered by investment angels?

•   How can these problems or risks be managed?

•   What form of investment should be done?

1.1 What is Investment?

Investment has different meanings in finance and economics. For the purpose of this study investment is spending on capital goods by firms and government, which will allow increased production of consumer goods and services in future time periods. Investment may also mean an act of an individual or any entity that involves deployment of money (cash) in securities or assets issued by any financial institution with a view to obtain the target returns over a specified period of time.

Investments and production bring health to the economy of a country and increasing their levels is the major aim of any government of the day. Without investment there is no economic growth to talk about. Therefore it is imperative for a developing country to create a conducive investment environment with the aid of consistent policies to ensure investment. These policies can also be centred on attracting investment in all sectors or some sectors of the economy. An investor must take into account the impact of a number of factors before committing capital in any investment. One has to ascertain if the venture is worth it considering all factors affecting the business. Most importantly an investor has to be aware of risks that the investment is exposed to.

As the world has become a global village it must be easy for funds to flow