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Mandela’s Legacy: Should You Buy the South African ETF (EZA)?

|Includes: AU, iShares MSCI South Africa ETF (EZA), GFI, SSL




A number of SA contributors have recently written favorable articles about South Africa (Republic of South Africa, or RSA) and have advised purchase of the ETF comprised of that  nation’s biggest companies.


I wish I could agree that now is the time to buy EZA.  Of the 80 or so nations I’ve visited, lived in, or been deployed to, RSA (South Africa) is one of a handful of top favorites.


I was there just after the mile-long lines of citizens voting for the first time in their lives were photographed.  And I was there when Mandela decreed there must be no retribution, no violence, no civil war, no harm to those who enslaved him for 27 years and encouraged drive-by shootings of his wife and children while he was in prison. 


I have boundless respect for Nelson Mandela – whose 91st birthday it is tomorrow, July 18.  He has been a statesman at a time when the world provides only an over-abundance of mere politicians.  When a Rwanda-style genocide could have occurred and was widely predicted, it was the strength of his ethical conviction, the power of his personality, and the deep respect South Africans have for him that his decree of no retribution, but instead “truth and reconciliation” won the day.


He did not come easily to this course of action.  He was no Mohandas Gandhi, whose life was one of non-violence.  He began with non-violent protest, but after the violent and lethal response from the apartheid government, he became a firebrand anti-apartheid activist, bomb-maker, and the leader of the African National Congress’ armed wing, the Spear of the Nation. 


Yet, as early as 1964, at his trial for sabotage, he stated “During my lifetime I have dedicated myself to the struggle of the African people. I have fought against white domination, and I have fought against black domination. I have cherished the ideal of a democratic and free society in which all persons live together in harmony and with equal opportunities. It is an ideal which I hope to live for and to achieve. But if needs be, it is an ideal for which I am prepared to die. 

My hope now is that those who follow in Mandela’s footsteps will respect the ethics and desire to put the needs of the country before the retribution, nepotism and corruption that has characterized so much of African politics and culture.


Why?  Because South Africans deserve it.  For those who haven’t been there, this is a first-world nation with gorgeous beaches, great vineyards, world-class hospitality and infrastructure, friendly people, and a respect for and protection of the magnificent animals they share their nation with.


However -- after Mandela retired and Thabo Mbeki replaced him, the government became increasingly statist and centralized, characterized by corruption, nepotism, and a failure to deliver on services to the poor.  Because it is also a nation blessed with an amazing panoply of natural resources, however, it has enjoyed, until recently, exceptional economic growth.


Regular readers know that I believe corporate governance is key to a nation’s success.  If governance is honest, transparent and capitalist (that is, regulated for the protection of investors and other stakeholders, but otherwise not interfered with) then I consider that nation for investment.  If run for the benefit of the oligarchs or political elites (like Russia), the kleptocrats (Myanmar / Burma), the autocrat du jour (Venezuela), or the political faction in charge at the moment and their toadies (Zimbabwe, Congo, and too many others to mention) I pass.


Which way will RSA go?  As of April 22, they have a new leader, Jacob Zuma, who was accused and indicted during Mbeki’s reign on charges of racketeering, corruption and bribery.  He was alleged to have tried to extort a personal bribe of some size from French defense contractor Thomson-CSF in order to facilitate the sale of ships to RSA.  Those charges were all dropped on procedural issues and the police organization that brought the charges, coincidentally, disbanded.  For now, we don’t know if there was truth to them or if it was sour grapes from Mbeki.  Either way, it doesn’t inspire confidence in transparency and honesty in RSA politics.


That’s not to say I don’t like individual companies headquartered in RSA.  I have recommended, and personally owned, 4 of EZA’s top 10 holdings: Sasol (NYSE:SSL), AngloGold Ashanti (NYSE:AU), Naspers (OTCPK:NPSNY), and Goldfields (NYSE:GFI).  All are fine companies, well-led, with excellent prospects.  However…


1 – There is a time to buy and a time to step aside, and


2 – I’d rather buy these crème de la crème firms, even when it is time to buy, than a basket of a few score lesser firms. 


So while I applaud my fellow contributors’ willingness to step beyond US shores and look at world-class investments in places like RSA, for me it’s wait and see time -- for both RSA’s leadership and the RSA and US stock markets.


Full Disclosure:  We have owned a number of fine RSA stocks in the past, and will again, but for now we hold no position in any of the above.  


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