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World's richest man makes a case for investing in Africa

dberman@globeandmail.com

David Berman writes for Inside the Market (tgam.ca/inside-the-market), which offers up-to-the-minute analysis of stock trends and market-moving news throughout the trading day.

Bill Gates wants Norway to invest more money in Africa. Is that a tip?

Mr. Gates, of course, is the co-founder of Microsoft Corp. He is the world's richest man and now focuses a lot of his energy on the Bill and Melinda Gates Foundation, a global philanthropic organization that has assets of $40-billion (U.S.).

That's a lot of money. But Norway's sovereign wealth fund - which gets its money from the country's vast energy industry - has considerably more: a staggering $800-billion.

Just as Mr. Gates has appealed to the world's billionaires to step up their charitable giving, he is now appealing to the Norwegian fund to put more of its money to use in the world's poorest regions, particularly sub-Saharan Africa.

The way he sees it, this is more than a good cause. Investing in Africa's infrastructure will generate returns over time, making it a sound investment as well.

It's worth listening to Mr. Gates. He's not just a billionaire doing good; he is a very shrewd man who has often combined his interests in progressive ideas with money-making opportunities.

He owns a big stake in Ecolab Inc., a U.S. company involved in water management and energy conservation (and whose share price has risen 50 per cent this year). He is also chairman of TerraPower LLC, a startup that is developing a better, safer nuclear reactor.

His appeal on Africa, then, has a bullish ring to it - and it comes at an interesting time. Emerging markets stocks have lost some of their shine after underperforming developed-market stocks this year.

At the same time, there is growing interest in looking beyond the usual suspects in the emerging markets landscape - Brazil, Russia, India and China, or the so-called BRICs - to countries that hold more upside appeal.

Indeed, listen to an emerging markets fund manager these days, and he or she is likely to highlight an interest in places such as the Philippines and Vietnam, blurring the distinction between what is considered "emerging" and "pre-emerging."

In making his case for Africa, Mr. Gates is adding his enthusiasm to a number of other bullish voices that have been pointing to its strong economic growth and youthful population as a reason to invest.

China has done considerably more than just point: Its trade with Africa rose to $200-billion last year, making it Africa's biggest trading partner, according to The Economist.

Most of that trade involves commodities, though, and Mr. Gates is clearly after more than new holes in the ground.

For big investors, finding opportunities beyond mining and energy isn't a problem: They can take stakes in privately held companies or make direct investments in infrastructure or consumer-related companies.

Small investors are limited to publicly traded stocks, which usually means buying units in an exchange-traded fund focused on Africa or frontier markets.

This isn't a big limitation, though. The iShares MSCI South Africa ETF is an ideal way to bet on the region's future because South Africa has become a launching pad for businesses that cater to the rest of the continent.

Nearly half of the fund is composed of financial-service and consumer discretionary stocks. Standard Bank Group Ltd., the fourth largest holding in the ETF, has expanded its operations to 19 African countries as it taps into economic growth.

The fund also provides exposure to Shoprite Holdings Ltd., a retailer that has been opening dozens of supermarkets in countries such as Angola, Zambia and Mozambique, and Vodacom Group Ltd., a telecommunications company that serves 50 million customers in six African countries.

And while you might think that the fund has a heavy exposure to commodities, it turns out that energy and materials stocks account for just 22 per cent of the ETF in terms of their combined weightings - or considerably less than their share of Canada's S&P/TSX composite index.

Mr. Gates wants Norway to do the right thing by investing in Africa. But this isn't charity work: It's a good idea.

© 2007 The Globe and Mail. All rights reserved.

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