Ivory Coast Disaster Shows Validity of Meme Investing

A recent article on the Ivory Coast in The Financial Times illustrates the point this publication regularly makes about investing via dominant social themes. One has to decide if elite perspectives are accurate or if what we call the Internet Reformation is going to win the day. It's a tug of war and the Ivory Coast provides us with a great example of how this works. That's one reason we've been scrutinizing the country's disputed regime-change. In this article, I want to examine the process more closely from a financial standpoint.

Let's start with an Ivory Coast primer. Laurent Gbagbo was forced out of office unconstitutionally (though you'd never know that from the coverage the crisis received). Now his nemesis and new president Alassane Ouattara (the favored candidate of the IMF, France and the UN) is getting ready to formally assume office.

The Financial Times informs us in an article entitled, "Ivory Coast: Place Your Bets," that as this occurs, the country's important stock market is about to reopen. As of May 16, FT writes, "the country's business capital, Abidjan, [will give] investors a chance to place their bets on the country's prospects."

FT quotes Larry Speidell, chief investment officer at California-based Frontier Market Asset Management, on the reopening: "We don't feel compelled to trade although we would like to add to Ivory Coast at this point," says Speidell. His $36m Frontier Select fund has 6.5 percent of its portfolio in Ivory Coast, FT informs us.

The opening is a big deal as the Ivory Coast was commonly held to have one of the region's most vibrant and stable economies, and the stock market reflected that. The market acted as a financial hub for numerous other countries in the area. However, all that changed during the disputed election when Gbagbo refused to leave office until French and UN troops dragged him out of his presidential basement.

FT tells us that before the damage was over, Gbagbo had tried to nationalize banks and seize what cash he could from a variety of corporate and government sources. To be fair, Gbagbo was in desperate straits at the time given that the UN had helped to coordinate a worldwide embargo against his failing regime and had shut down sources of currency as well.

As a result, many of the country's brokerages shut their offices and the "banking system was annihilated," according to Stephen Mack, managing director of Chicago-based Frontaura Capital, which, FT tells us, has $80m under management in global frontier markets, including Ivory Coast. The stock exchange itself continued to function out of nearby Mali, but a lack of local custodians meant that most of the bigger trades couldn't be processed.

In fact, the Bourse Régionale des Valeurs Mobilières is no small deal in Africa. From the article we learn that it is home to 39 companies with a market capitalization of more than $6bn. While many investors might find much to criticize in terms of size and risk, "frontier-hunters continue to see value in BRVM, which covers eight French-speaking west African countries. Companies operating in Ivory Coast - including Nestlé, Unilever, Total and several banks."

The bottom line for the bourse is that as the custodians are in Abidjan, that's where the stock exchange will stay. And long-term prospects may be encouraging. Inflation, we learn, is relatively low and growth may exceed six percent next year. Of course, stocks on the bourse are expected to go a good deal lower when the exchange first reopens. It's been a hard slog, though Speidell claims that many stocks may soon become "a screaming buy." Here's how the FT sums it all up:

Ivory Coast has become riskier and businesses may struggle to catch up with missed loan repayments during the 10-week bank closure. But as ports reopen and exports of cocoa, palm oil, rubber and oil pick up, the slow reopening of the banking system and the prospect of debt relief - as well as an injection of about $400m in back pay for civil servants and the promise of hundreds of millions of dollars from international donors - all count in the country's favour.

The above actually sounds quite enticing. One "strongman" has been kicked out and a new president with ties to the West and a technocratic approach to governmental management is assuming power. The stock market is reopening and international confidence is returning. The only trouble with the story as it stands is that it glosses over a number of uncomfortable facts. And this is why I'd argue DB "meme analysis" is important in such instances.

In the 20th century, the Anglo-American power elite, which evidently and obviously created the current electoral situation in the Ivory Coast, would have been able to wrap its neocolonialism without significant pushback. But in the 21st century it is far more difficult.

For instance, Ouattara is the "chosen" candidate to run this important, small country, but over the past months it has become quite clear that his forces engaged in a good deal of untoward violence toward Ivory Coast citizens. Ouattara is Muslim and represents the Muslim North. Gbagbo was Christian and represented the Christian South. The nation is split right down the middle without about seven million Christians and seven million Muslims - and Gbagbo's violent ouster has displaced thousands of Christians who fear retaliation now than Ouattara is in power.

The most recent report of massacres by Ouattara forces comes from France24, which just yesterday posted a small story about the town of Duékoué, which apparently witnessed a "bloodbath." According to France24, "Mass killings took place at the end of March when the town was captured by forces loyal to President Ouattara. 30,000 people who fled those massacres are now crammed into refugee camps in unhygienic conditions. Most of them voted for Gbagbo and they now fear returning home - they are afraid of reprisals."

Meanwhile, having "captured" Gbagbo, Ouattara is getting ready to put him on trial - and to do so first in the Ivory Coast and then perhaps internationally in The Hague. Ouattara has been advised by numerous African leaders to forego a trial because Gbagbo won at least 45 percent of the vote and can thus be seen as representing some seven million Ivorians. But Ouattara, whose forces fought Gbagbo for four months, seems disinclined to back off.

In an article entitled, "Gbagbo quizzed on I. Coast unrest as lawyers barred," AFP reports that "Investigators quizzed fallen leader Laurent Gbagbo for the first time Friday about post-election violence which engulfed Ivory Coast ... without the help of a team of French lawyers who were turned back at the airport."

This is actually a fairly serious developing situation for the small nation. According to AFP, two prominent French lawyers, Jacques Verges and Marcel Ceccaldi, were not allowed to enter the Ivory Coast when they touched down at Abidjan. They were sent back to Paris. A third lawyer, Lucie Bourthoumieux, was a resident and thus able to enter the Ivory Coast but chose to fly back to Paris. Verges was quoted as saying that he was "pessimistic about the future of a regime which treats lawyers in such a way." Verges also said he believed the regime did not have any intention of giving Gbagbo a fair trial.

A good deal of pressure is being brought on Gbagbo, which only shows how important the Ivory Coast regime change is to the Anglo-American elite, which wants to use it as an object lesson for the rest of Africa. As we reported last week, Gbagbo was "allowed" a meeting on Monday with a group of African "elders" - The Elders - that included Desmond Tutu and former UN secretary general Kofi Annan. After the meeting, Tutu said that Gbagbo wanted to see the country "return to a normal situation ... (Gbagbo) said that he had to heal the wounds of the country."

It seems hard to believe that Gbagbo, Christian though he is, would seek for the Ivory Coast to return to "normal." As has been reported here (if in few other places), Gbagbo probably won the election, as Ouattara's Northern districts were reporting in excess of 150 percent of the allowable vote.

What passed for the Ivory Coast's Supreme Court threw out the results of these districts and awarded Gbagbo the presidency. He was duly sworn in at which point, Ouattara sent an email to Ivorian authorities stating apparently that he had sworn himself in and was demanding official recognition. At the time, Ouattara did not get it.

However, the UN which was supervising the elections decided that there were no major discrepancies and awarded the elections to Ouattara. This created a four-month stand off which was only resolved when the UN and France forcibly removed Gbagbo from the presidential mansion and handed him over to Ouattara. At least one high-ranking Gbagbo official was murdered in the process and there are conflicting accounts as to whether his wife was sexually assaulted as well.

Gbagbo was held incommunicado until very recently and as can be seen from the AFP report, he is not receiving representation. The idea apparently is to put him on trial and convict him for the unrest he supposedly caused. No doubt he will be accused of egregious financial crimes in order to further impugn his character. But that is probably beside the point. Many Ivorians probably perceive that an injustice has been done from a constitutional standpoint that has nothing to do with Gbagbo's personal behavior. The perception must be that a kind of neo-colonialism has returned to the Ivory Coast and in the long run this may prove most corrosive to Ouattara's intention to rebuild a functioning Ivorian society.

Recent news reports have claimed that post election violence has died down but one might wonder how that can be when some seven million Christian Ivorians have just been disenfranchised by the French in concert with the UN. It is hardly a secret either. Gbagbo's ouster played out in thousands of articles on the Internet. These matters are much harder to conceal than they once were.

That is why I began this article by stating that the Ivory Coast provides us with a good example of how an analysis of dominant social themes can help determine a region's investment potential. Ouattara's Western backers maintain that the Ivory Coast is returning to normal and that the Ivorian bourse will be very undervalued when it reopens. But the availability of Internet information provides us with another perspective.

This non-mainstream perspective holds that up to seven million Ivorians are offended and even angered by French neo-colonial actions in the recent elections and believe that both the UN and France acted badly and even illegally. There may be a good deal of pent up sympathy for Gbagbo, as he has been treated shabbily, his wife allegedly assaulted, one of his closest aides murdered and the election of which he was declared the victor via Ivorian law stolen away.

Now apparently Gbagbo is to be put on trial for his "crimes." And if the current mechanics of justice provide us any clue, he will soon be convicted and sentenced either to a life behind bars or most likely death (as his continued existence might prove most inconvenient to the powers-that-be). The question that Ivorian investors have to ask themselves - especially those from outside of the country - is whether the official narrative is more convincing than the alternative-news narrative just related above.

In a pre-Internet era this narrative would NOT have been available. Gbagbo would be seen as just one more grasping strongman who overstayed his welcome. But this is evidently not the case. And so the question should be asked: Will life return to normal for the Ivory Coast once Gbagbo is either imprisoned by law or killed, or will the evident and obvious extracurricular process - as documented by thousands of articles on the Internet - fan the smoldering ashes of resentment and gradually create a conflagration? Such a result would surely destabilize the very prosperity and business-as-usual that the French, the UN and the nascent Ouattara/IMF regime are trying to reestablish.

The meme is business-as-usual. But can this sub-dominant social theme be believed in the era of the Internet Reformation? Each investor - corporate or otherwise - will have to answer that question one way or another when investing in the new Ivory Coast.