Mark Wallace's  Instablog

Our friend Kevin Virgil is still on the ground in Libya, assessing the situation.

Last week, in Libya - The Real Story we got an update from him which proved to be right on. Let's hear what else Kevin has to say on Libya, which is a country he's betting big on.

--------

Mark: Kevin, remind us once again why you are so enthusiastic about the "new" Libya

Kevin: Mark, last year I attended an event in Washington DC where Libyan National Transitional Council (NTC) leaders met with elected leaders in the US government. The Libyan delegation was in the midst of a 'road show' to several Western capitals in order to solicit support for the rebels who, at that time, were locked in a struggle with the Qaddafi regime. I found their story to be compelling and decided that I wanted to see the place for myself.

Soon after that meeting the world learned that Qaddafi had been captured and killed, and that the Libyan people had taken control of their country. I realize that this was a unique opportunity to watch history unfold, and I departed immediately. I was in Tunisia less than 48 hours later - I had to enter Libya through the western border since the NATO no-fly zone was still in effect. Entry was challenging because the border and the visa issuance system were in disarray, but after a couple of days I made it in and arrived into Tripoli while celebrations were still ongoing.

Mark: That must have been pretty unbelievable.

Kevin: It was awesome, and I very quickly discovered how momentous the Arab Spring will be for Libya's future.

Mark: Give us the obvious, low-hanging fruit.

Kevin: The country has many outstanding attributes - significant hydrocarbon reserves, over 1,800km of amazing undeveloped Mediterranean coastline, and a highly entrepreneurial populace. This is a city with the potential wealth of Doha or Dubai, but Qaddafi's reign of oppression and theft has trapped it in a time warp while the rest of the world has advanced.

As an observer, it is heartbreaking to visit Tripoli now and see so many decrepit buildings and the woeful state of infrastructure. On the other hand, as an entrepreneur and frontier market investor, that emotion is overcome by the sense of enormous opportunity and the realization that Libya represents a "deep-value" play that may have no other parallel in today's world.

Mark: Chris and I agree with you Kevin. That coastline alone screams to be explored. Plus, as you pointed out to us in Mongolia, the Libyan people are pretty intrepid and entrepreneurial.

Kevin: That's absolutely right. I have never been to Cuba, but I have heard various narratives regarding how a half-century of socialism has destroyed the entrepreneurial spirit there. In Libya, this is far from the case. Even though Libyans were forbidden from setting up companies until 2003 - and the corporate governance laws were designed to act as barriers rather than incentives - many local businesses have done very well.

For example, I have met a successful businessman in Tripoli who opened a water bottling facility in 2003 with a $40,000 loan. He sold it (fortuitously, it turns out) in 2010 for over $2 million. He only did so because the business had grown to the point where it had begun to attract attention from government thugs. His success, which would have been impressive in California or Cape Town, is even more remarkable when considering the onerous business climate under which he was forced to operate.

Mark: And he did that under the Qaddafi regime and stayed under the radar. That is impressive!

Kevin: Another contact, who has built several successful companies, intends to open a chain of scuba shops throughout Libya. As an avid diver, I find this to be very intriguing. Libya's coastline is world-class and in close proximity to wrecks that are literally thousands of years old. There are numerous Roman ruins on the coastline that sit underneath a few meters of water. (Though divers should be forewarned that some local fishermen prefer to use dynamite instead of nets and lines, and don't always grasp the meaning of a 'diver down' flag!)

Those are just two examples of small businesses that I am seeing at the grass-roots level.

Mark: I think you need to join us in Fiji if you want some great diving Kevin... and maybe a bit safer yet!

Kevin: That's fair enough (laughs)...

Mark: What about the overall economy?

Kevin: The economy is improving on a larger scale as well. Crude oil production has recently surpassed 2010 levels - an accomplishment that the most optimistic observer would never have imagined nine months ago. Construction projects are re-starting after months of inactivity. We are beginning to see more government and private-sector tenders being released now as well. In short, Libya has dusted itself off after last year's conflict and is beginning to rebuild.

Mark: And the government? I read an encouraging article in the BBC this past weekend about how most Libyans are supporting the peace, and condemning the attacks on the US embassy.

Kevin: I believe that the foundation will be entrepreneurial local businessmen playing a key role in Libya's resurgence. However, in order for them to succeed the new government's role will be even more important. It must accomplish several daunting goals such as: implementation of law and order, protection of human rights, drafting of a new national constitution, re-writing of property rights and corporate governance laws, and promotion of regulations which facilitate foreign investment while promoting transparency and efficiency.

Corruption is everywhere (though in the US we have simply re-branded it as "lobbying" and legalized it) and frontier markets are certainly no exception. I have found, though, that after 40 years of the Qaddafi kleptocracy, your average Libyan now takes a dim view toward overt corruption. For the time being at least, Libyans genuinely want to see a fair and transparent government that is free of the problems they have suffered through for so long.

Mark: We're seeing this in a lot of places Kevin. We were just in Myanmar, which is making an unbelievable transition. And, we heard from our sources in Mongolia last week as well that the new DP government there has listed some really compelling and positive reforms. All great news for foreign investors.
We often say that perceived risk is usually greater than actual risk (not always, but very often). What "perceived" risks are people articulating right now?

Kevin: For the past year I have sent periodic updates on my findings in Libya to a growing list of readers. A frequently asked question involves the likelihood that the eastern region of Libya, historically referred to as 'Cyrenaica', will pursue autonomy. While there was certainly much discussion and stirring debate about this before the election, it appears now that this was mostly political theater, intended as a ploy to maximize Benghazi's leverage within the new government.

Despite the mainstream media's dire predictions of violence and chaos, Libya's elections were a great success. Over 98% of all voting stations remained open, and nationwide voter turnout was 63% - of which 50% were women. That compares favorably to average US voter turnout of 43-47% in presidential elections.

Mark: That should tell us all something right there (laughs). I'll let our readers make their own determination on that one. Outside of the recent unfortunate events in the country, what else has been happening on the ground?

Kevin: Summer in Libya has been slow; businesses did not want to make hiring or investment decisions until after the elections in July. Ramadan began a few days afterward, which was also a very quiet period. We have begun to see an increase in activity since the Eid (end of Ramadan) in mid-August and expect that trend to continue.

The newly formed government has two critical tasks ahead; they must draft a new constitution within the next 60 days (a very aggressive goal, in my opinion), and they must select a prime minister. Both tasks, if performed well, will do much to improve the business climate in Libya and encourage more activity.

The country's most important challenge, however, will be to establish rule of law and security internally. There are still dozens of militia brigades that operate with impunity in the major cities and operate as de facto gangs, as we saw in Benghazi two weeks ago. The national government and local councils must deal with this issue as soon as possible, either through negotiation or by force.

Mark: Let's hope it's the former. If violence continues foreign investment will be slow to come in, am I right? Or, is it coming regardless?

Kevin: Most foreign investors will wait to enter the country until a perceived benchmark event happens; maybe they want to see establishment of consumer credit, or for Goldman Sachs to open a Tripoli office. Our opinion is that, if you remain 'in the herd' and wait for whatever you perceive optimal conditions to be, then the best opportunities for significant wealth creation will be gone by the time you finally enter that market.

We are in Libya for the long term and have firm conviction in the growth story of this amazing country. I arrived when the ashes were still smoldering and have continued to build relationships and identify opportunities during the past year. Our goal is to work with trusted and vetted local partners to build a series of businesses in non-correlated industries, and to help in building them so that we may play an integral role in Libya's reconstruction.

Mark: We talked about a couple of the projects you are looking at, which really did intrigue us. Tell us a bit more.

Kevin: After several months of planning, we are about to open our first business in the new Libya. We are very excited about this and have already received a lot of interest.

We expect that this new company, which will focus on professional services for foreign business travelers and expats, will "go live" in November 2012. We are talking to investors now about a limited equity investment. We currently have commitments for about 40% of our initial capital requirement, and hope to lock in the remainder within the next 30 days so that we can adhere to our intentions of a November opening.

We are keeping the balance sheet very lean on this one so as to keep our startup costs low; therefore the required capital is small. I do not expect that we will pursue additional funding rounds as this business will generate more than enough cash flow for rapid organic growth.

Mark: Any room left in that one Kevin?

Kevin: There is room for a small group of accredited investors in this round. In addition to a very attractive exit plan, we're extending right of first refusal on all future activity that we pursue in Libya. We have very aggressive growth intentions across multiple industries and we will be looking at many attractive opportunities in the future.

Mark: Any final thoughts Kevin?

Kevin: I just want to remind your readers, many of whom I know realize this already, but it bears reminding. You will NEVER obtain the true story if you rely on media outlets for your facts, as most of them have their own agendas.

As with most frontier markets, the best way to learn the 'ground truth' is to go see the ground for yourself. It's what you and Chris are doing, it's what I continue to do, and am sharing my findings with anyone who cares to listen.

Mark: Amen to that Kevin. God speed and keep safe out there!

Kevin: Thanks Mark, let's chat again soon.

---

Chris and I are happy to pass along Kevin's contact information to any of our readers who want to find out more about Libya, what Kevin is up to and/or how you might also capitalize on the "new" Libya. Just drop us a note.

Kevin is a sharp guy, and we'll be hearing a lot more from him over the coming months, you can count on it!

- Mark

"If you look at the demographic development, during the next decades, Egypt will be bigger than Russia and there will be two additional Egypts added from the populations of the south of the Mediterranean. So the challenges in terms of reforms over the next years and decades are ominous." - Swedish Foreign Minister Carl Bildt

By now everyone has likely heard of the events that transpired a few weeks ago in Libya and throughout the Muslim world. The mainstream media (MSM) would have you believe that it's all a result of a ridiculous movie, created by some obscure California movie producer.

We're not that naive, and neither are our readers.

We tapped our man on the ground, Kevin Virgil, who's in Tripoli as I write this to find out what is really going on, and to give us his insights and observations so that we can assess the REAL risks.

As you may remember, Kevin is investing in the reconstruction of Libya, and we have interviewed him previously in our post Libya - Land of Opportunity.

Let's hear what he has to say, shall we...

--------

Mark: Kevin, your taking a bit of a risk it seems, travelling to Libya now, so soon after a major international incident. What's your rationale, and are you at all concerned for your safety?

Kevin: Mark, for the past year I have made regular trips to Libya, averaging once every four to six weeks. As you know, I have built a very good network of friends and contacts along the way, who keep me informed on current trends and events throughout the country.

I would favorably compare my access and insight to anything that the major media outlets and the US Government have in place (This statement is not bravado; I am able to travel freely throughout the country when I am there, while most government employees are ordered to remain behind their compound walls).

My assessment, after long conversations with my contacts, is as follows:

The attack on the US Consulate was a pre-planned and coordinated raid, executed by a highly trained element of fighters. Opinions are divided on whether they were Libyan, or a mix of foreign fighters; it is likely that this element had planned an attack on the Consulate for some time and saw a golden opportunity in the "spontaneous" protests that gave them cover in which to mobilize.

The most likely explanation is that the attackers were the same Salafist hardliners who have been sowing conflict in Libya for the past few months. This group is aligned with the Muslim Brotherhood, who were soundly beaten by secular politicians in the recent Libyan elections.

I have heard speculation that the attackers could also be Qaddafi loyalists, or even aligned with Al Qaeda. Their alignments are not as important as their motives, which are to destabilize the political change that is now sweeping Libya and the broader Maghreb region.

Mark: Well that's just a wee bit different than the MSM would have us believe at this point! According to them it's all about a "film" that negatively depicts the prophet Mohammed.

Kevin: Gotta love that mainstream media propoganda machine huh? It has become blatantly obvious that these protests have absolutely nothing to do with the controversial "film" (more of a home movie) that an Egyptian-American white-collar criminal produced in California. The past few days of protest have been fueled by false outrage, exploited by manipulative imams and religious leaders who fear the growing trend toward secular government in the Arab world.

Mark: That sounds a lot more sensible than the drivel we're hearing from the talking heads.

Kevin: Here is a great example: this article notes how a Sudanese imam called on his followers to target the German embassy in Khartoum last week, because "anti-Muslim" graffiti had allegedly been painted onto mosques in Berlin. Think about that for a second. If you accept this imam's logic, then you believe that it is rational to target a country's embassy, or its sovereign territory for attack because of one person's alleged offense!

So, by taking this to its logical conclusion, if I suddenly decide that I hate one particular country and wish to cause it harm, I could simply travel to that country and deface a mosque in the dark of night. The ensuing damage that irate protestors will inflict on that country's embassy will result in significant financial damage, and possibly loss of life!

It sounds ridiculous - and it surely is - but this is the extent to which some Islamic hardliners will go in their attempts to retain influence and authority.

Mark: Chris and I often speak to one another on the subject of religion. Our views are not necessary to discuss herein, but suffice it to say that religion has caused more death and hardship than any other human-conceived institution, including governments. That fact cannot be argued or dismissed.

So, how is this going to play out in Libya Kevin, in your opinion?

Kevin: Libya's new government now faces a difficult task ahead, as it must punish those responsible. However its influence over Benghazi - a city where many would prefer to secede and form their own republic - is limited. The government must succeed, and I believe that they will because they have the support of the Libyan people. The vast majority of Libyans are pro-Western, and remain grateful for the assistance that the American-led coalition provided in last year's revolution.

In my opinion (if anyone cares to ask), the root cause of this collective anger is the overall sense of powerlessness that your man on the Arab street feels. Many of these protesters live in abject poverty and have only known life underneath an oppressive dictatorship. These conditions make it all too simple for their spiritual leaders - such as the Sudanese imam mentioned above - to manipulate those feelings in order to bolster their own influence and power.

Mark: I think it's important to note that the sense of powerlessness that you refer to is also being felt elsewhere. Throughout North America and Europe people are realizing that they are being held hostage by a group of gangster politicians and bankers, in cahoots with big business, all acting to forward their own corrupt agendas irrespective of public opinion.

But that's a subject for another post. For our purposes here today, what do you see as the likely next steps for Libya and how do they move forward?

Kevin: So as you just asked, the obvious question now is, what is the way out of this mess? How can we change perceptions so that we are not faced with violent outbreaks every time a fool with Wi-Fi and a camera decides to express his opinion?

I believe that the answer ties very nicely into a common theme that is often mentioned on this site, which is capitalism - the use of market forces to improve everyone's lives.

There are many goods and services that people can introduce into markets like Benghazi or Khartoum which will result in a better quality of life for everyone.

If we are able to build a small factory in Benghazi, and we can pay our employees a better wage than they are now receiving, then their lives and that of their families will improve. Other entrepreneurs will hopefully follow our lead, etc...until the general economic condition improves and people are too busy to throw rocks every time a radical picks up a microphone.

I have invested time and money (and assumed no small amount of risk) because I believe that Libya and its people will soon enter a phase of enormous wealth generation. Last week's terrible events have not created any doubt.

On the contrary, the reactions and determination of my Libyan contacts have reinforced my belief that this country is on the right track and will prevail. As I have said before, growth in this country may not always be linear or easily achieved, but I am confident that the trend will continue to move to the upper right on the chart.

Mark: Thanks Kevin! We support your thesis and we believe in what you're doing, which is why we've stayed in such close contact and are considering investing alongside you in some of these ventures.

Kevin: I appreciate the support Mark. If any of your readers have questions or concerns be feel to pass them along to me, or maybe they can comment herein.

--------

As you can see, Kevin understands a lot more than most. He's invested a lot of time and money creating a solid network in Libya and throughout the region.

Chris and I met with Kevin recently in Mongolia and got to pick his brain a bit on what he's up to.

We'll follow up with part 2 of this interview shortly...

- Mark

"All media exist to invest our lives with artificial perceptions and arbitrary values." - Marshall McLuhan

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

About 24 hours ago Chris and I arrived in Yangon, Myanmar, formerly Burma. It's a surreal place...

During the 45 -minute cab ride from the airport I felt a lot of emotions: excitement, angst, joy, desperation, hope, fear, scepticism and a hundred others. I've never been anywhere with this kind of energy.

The country has had a very long, very dark history of repression and isolation. It's been shut off from the rest of the world for my entire lifetime.

Despite the horrors that have befallen them, Myanmar's people are some of the gentlest, kindest souls on this rock. How the leadership of a nation of mostly peaceful Buddhists could have invoked the kind of repression, terror and inhumanity that they have on Myanmar's people is beyond my ability to comprehend.

Looking into their eyes leaves you heartbroken that they've had to endure as long as they have. Yet, at long last Myanmar's leadership appears to be walking the path of reform and embracing a little piece of capitalism.

You can feel the change. Our experience in the last 24-hours has been nothing short of incredible.

Coming through customs and immigration at the airport was a breeze. The staff was pleasant and helpful. Our cab driver told us straight up what the cost of our trip would be, no games, no bickering.

The service level at the hotels and restaurants surpasses that of most Asian cities I've been to, including Singapore. They may not be as educated or worldly, but their desire to please and their huge smiles overcome any deficiencies. You can teach someone how to deliver good service, but you can't fake sincerity and genuine kindness.

Despite the pervasive poverty and homelessness in the city, Chris and I never once felt threatened or like we were being sized-up.

The group of investors we are here with, who have come from all over the world to put their boots-on-the-ground, mostly agreed with us.

Myanmar is not only rich with its human capital, it is RICH in natural resources. Multi-national mining and agriculture companies are chomping at the bit waiting to figure out how to claim their slice of what will inevitably be one of Asia's fastest-growing economies - at some point.

And that point may come sooner than later. Just this week the government repealed an investment law that required a minimum $5M investment for foreigners wishing to do business in the country, and levelled the playing field for ownership, giving the green light to 50% foreign ownership of a Myanmar business.

That's great progress, but as a new friend of mine who has lived in Asia for almost 20-years pointed out, the rule of law is still in question here. Until more clarity is gained on that issue, investment will be slower than it could be.

You can count on hearing MUCH more from Chris and I later this week, but now I have to hit the sack; it's been 24-hours of planes, cabs and buses.

In the interim I'll leave you with an example of the challenges Myanmar still faces. These excerpts are from a government publication that is handed out to visitors coming into the airport...

Four Economic Objectives:

• The building of a modern industrialized nation through agricultural development, and all-round development of other sectors of the economy;
• Proper evolution of the market-oriented economic system;
• Development of the economy by inviting participation in terms of technical know-how and investment from sources inside the country and abroad;
• The initiative to shape the national economy must be kept in the hands of the State and the national peoples.

Can you pick out the two points that are pretty much in direct conflict? If not, I've highlighted them for you.

- Mark

"The struggle for democracy and human rights in Burma is a struggle for life and dignity. It is a struggle that encompasses our political, social and economic aspirations." - Aung San Suu Kyi