‘There’s No Such Thing as a Failed State’
The father of emerging markets says we shouldn't give up on the world's Somalias and Zimbabwes.
Mark Mobius is the kind of guru to whom other gurus turn for advice. With his signature white suits and gleaming, clean-shaven pate, he very much looks the part too. Executive chairman of Templeton Emerging Markets Group, managing some $45 billion and 18 overseas offices, the half-German, half-Puerto Rican Mobius is a legendarily farsighted investor who sees opportunities around every corner, often in places that aren't for the squeamish. After four decades at the top of his field, his name is on pretty much every list of people who matter in global finance. There's even a comic book on his life that has been translated into six languages: Mark Mobius: An Illustrated Biography of the Father of Emerging Markets Funds. Foreign Policy spoke with him about China's forays into Africa, how to make money in failed states, and why no country is too hopeless. Here are the edited excerpts:
Mark Mobius is the kind of guru to whom other gurus turn for advice. With his signature white suits and gleaming, clean-shaven pate, he very much looks the part too. Executive chairman of Templeton Emerging Markets Group, managing some $45 billion and 18 overseas offices, the half-German, half-Puerto Rican Mobius is a legendarily farsighted investor who sees opportunities around every corner, often in places that aren’t for the squeamish. After four decades at the top of his field, his name is on pretty much every list of people who matter in global finance. There’s even a comic book on his life that has been translated into six languages: Mark Mobius: An Illustrated Biography of the Father of Emerging Markets Funds. Foreign Policy spoke with him about China’s forays into Africa, how to make money in failed states, and why no country is too hopeless. Here are the edited excerpts:
Is Africa a basket case or an opportunity? I would say it’s both. In many cases it’s the basket case and it’s the next best thing, so what’s happened is the change in attitudes, the change in perception. But on the ground, of course, things are still not hunky-dory.
Probably the defining variable is what is happening in other emerging markets. China, Brazil, Russia, India — these countries now are getting to a point where they have excess reserves. They have money to put into other parts of the world. And of course they have been putting money into America, into Europe, but they also are now going into Africa. On the one side they need the natural resources — China. On the other side they see an opportunity to make money and make better returns.
The range of what’s possible in these countries is quite tremendous simply because they are building from such a low base. In the last 10 years, for example, six of the fastest-growing nations of the world were in Africa. But also it’s the fact that the printing presses are working overtime in America, in Japan, and even in Europe. There’s a lot of money to be invested, and a lot of that is because of the fears of inflation finding its way into equities. So you have a very unusual situation where pension funds are really buffering because investments like U.S. Treasury bills are paying such a low interest rate — which leads them into emerging markets and frontier markets, with frontier meaning Africa, Central Asia, far Eastern Europe.
The African countries most on my mind right now are South Africa, Nigeria, and Egypt. They’re important markets, and they’re getting their act together. I know many people don’t have nice things to say about Egypt these days, but at the end of the day they will get their act together and they will continue to work.
We were in Rwanda about six months ago, and we were all really shocked at all of the infrastructure, at least in the capital, and the degree of governance, the way law and order was in that country. There are such huge differences in Africa from one country to another: differences in temperament, differences in behavior, and so forth. And Rwanda is a great example of a country that’s really got itself in order and is a reminder that, again it has this background, this image of the genocide and all the rest of it.
If you take Somalia, they have natural resources. Large companies want to go in there and drill and look for those resources. And that means money goes into the country, people begin to raise their living standards, and then you have a market. We’re not writing off any of these countries. In my opinion, there’s no such thing as a failed state. It may be in trouble, but it hasn’t failed. The mere fact that it is a state means that it’s alive.
Another good example would be Zimbabwe. You mention the name and people just think, "God, what a basket case," but we are investing in Zimbabwe. And again, it’s an example where you have to pick and choose the right companies with the right management. Then you can do pretty well.
China is a very positive element to this whole picture, and there are two sides to this: There’s the Chinese government and the Chinese entrepreneur. The Chinese government goes in and they say to a country, "Look, we want to be friends." And then they say, "Look, we know you’ve got this coal, and we need this coal. We can do a deal with you to export the coal into China, but in order to get it out of the country we’ve got to build a railroad. If you’ll do a long-term deal with us, we’ll build the railroad." Once that begins, then you have Chinese contractors, Chinese workers coming in and establishing small businesses and trading. And their relatives come in and they see the opportunities. So you begin to get a private market in Chinese products and to expand and attract other people, and you begin to have more of a market economy. Then you have people like retail outlets in South Africa wake up and say, "Hey, they’re in the market here. The Chinese are selling this and that. Why don’t we go in and set up a business?" So I would say that generally speaking, the influence of the Chinese has been very positive for these countries. Of course there are some downsides. Some countries say that the Chinese are doing all the work and we don’t have any jobs and so forth and so on, but these are things that can be ironed out.
The State Department is very much aware of what’s going on, but at the policy level they have not committed the kind of resources that the Chinese have committed. And that’s highly unfortunate, but I think going forward there will be more private-sector involvement from the U.S. in particular. There also has to be leadership in terms of analyzing what’s happening on the ground and conveying that to the American people. A good example would be Sudan. I mean, suddenly, unexpectedly, things have changed in Sudan. Now there’s a South Sudan. And the Chinese are saying, "We can work with these people," even though the Chinese were accused of committing genocide by trading with the Sudan government. The Chinese are better [at working in Africa] because they are building whole entities around accepting what’s on the ground and then working with that, the local environment. That can lead to accusations that they’re corrupt, that they’re working with dictators, etc. But I think, personally, if you want to see change, you’ve got to accept what’s on the ground and then work with that.
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