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Opportunities for Investment in Africa

I am pleased to submit for your review and concurrence our first-stage proposal for Allstate to embark on an African investment program. Our thorough review of macroeconomic data, authoritative sources and analyst reports suggest that an Africa fund would go a long way toward redressing currently sluggish returns on client’s domestic investments. At the end of the day, I believe we have marshaled several strong points that ought to convince Mr. Liddy to take this investment direction seriously and, owing to our having done some early spadework, invite our participation in this investment venture.

There is a trend toward pronounced FDI inflows into Africa that seems to have started in 2004 and accelerated rapidly in 2005-06. This is an opportune time to position an Allstate investment fund before other investors catch on. The experience of Blue Financial and Emerging Capital Partners proves that returns can be very hefty indeed for canny investors. Allstate is in a position to create, manage and solicit investors for a fund such as the AIG African Infrastructure Fund. We have the funds to establish this ourselves and the credibility to attract wealthy investors. Our strategy can be two-pronged.

We should examine placement options with the prominent Africa investment funds immediately to bolster return on assets this year while doing the groundwork for an investment vehicle of our own and setting up in Africa over the medium term. Meanwhile, a third investment team should immediately be tasked with trading in high-potential stocks in South Africa and the eighteen other countries that already have stock exchanges. The main targets for an Allstate investment fund should be food, infrastructure, petroleum, communications, upstream and downstream industries related to agriculture, and minerals.

Should you find this proposal compelling, I invite you to formalize the matter with Allstate. Otherwise, I stand ready to optimize this together with you. March 1, 2008 Mr. Edward Liddy Chief Executive Officer Allstate Insurance Company 11860 Dublin Blvd. Dublin, CA 94568 Dear Mr. Liddy, Allow me to say, first of all, how gratified all of us are about your report that Allstate has already realized tangible gains from the Web-based sales system we initiated for you last year. It has always been our aim, as you know, to help Allstate achieve strategic goals and ultimately, contribute in meaningful ways to bottom line results.

For some time now, we have examined a variety of programs and vehicles for optimizing gains from the $280 billion in investment funds Allstate deploys. Like you, we wish to extend the winning run typified by record-breaking shareholder returns in Fiscal 2006. This initiative of ours gained even greater urgency when the weakness in sub-prime mortgages affected Allstate assets devoted to affordable housing loans and Economically Targeted Assets (Allstate, 2008). What was invested at below-market rates to begin with looks to be at grave risk for the foreseeable future.

By all accounts, the current recession may linger beyond end-2008. Accordingly, we broadened our search for viable investment strategies to offshore vehicles. I am extremely pleased to report that careful study suggests Africa offers us a highly satisfying combination of great absorptive capacity, above-market returns and coherence with the Allstate corporate social responsibility policy. Africa: The Next Investment Frontier Many banks and funds have sat up and taken notice of the fact that Africa seems to have turned the corner.

The number of conflicts have dropped, there are abundant mineral and oil deposits that need to be put into production, and many countries boast an appreciable record of economic growth. By 2005, a World Bank report revealed, no less than 16 nations in sub-Saharan Africa had grown better than 4. 5 percent annually for at least ten years straight. This prompted World Bank vice president for Africa Gobind Nakani to observe that, “Africa today is a continent on the move, making tangible progress on delivering . . .

growth, trade, and poverty-reduction outcomes” (Baldauf, 2006). Such multi-lateral institutions may have been too cautious in designating 2005 the signal year for the “Africa phenomenon”. A year previously, UN Secretary-General Kofi Annan had assured participants at the Asia-Africa Investment and Trade Conference in Tokyo that: Many major multinational companies are today doing business in Africa, not only in the traditional extractive industries such as oil and metals mining, but also in the manufacturing and services sectors.

They are discovering that the returns on carefully selected investments in Africa are as good as anywhere else. (UN, 2004, p. 1) Magnitude of FDI Our study suggests that we are at the early stages of a rising foreign direct investment (FDI) trend in Africa. A variety of authoritative and objective sources report that capital inflows began to rise at an increasing pace over the last six years. Of these sources, there is perhaps none more global or hardnosed in outlook than the International Monetary Fund (IMF).

From just US$ 9 billion in 2000, the Fund estimates, private capital inflows to Africa had quintupled to US$ 45 billion by 2006 (as cited in Mahtani, 2008, p. 2). For its part, the United Nations Conference on Trade and Development (UNCTAD) suggests that the pace accelerated more recently: its World Investment Report 2007: Transnational Corporations, Extractive Industries and Development reveals that total FDI doubled from 2004 to 2006 to reach $36 billion (as cited in Ford, 2008, p. 24. ). These amounts include traditional private investments by multinational companies.

However, the pace picked up owing to widespread interest in common funds established by American, British and Russian interests, as well as a few based in the continent itself (Santiso, 2007). For instance, Pamodzi Investment Holdings of South Africa has received backing from US financial institutions for its sizeable US$1. 3 billion pan-African fund. Other “homegrown operations are Standard Bank of South Africa subsidiaries Investec and Stanlib; there are also Imara and Ethos Private Equity.

Russia’s Renaissance Capital could claim, by the summer of 2007, to be “well on the way” to aggregating a pan-African investment fund of similar size. Out of London, the Blakeney Management fund could boast much greater foresight, having been active in African investments for more than ten years. At the end of the day, this is all about return on investment. If the nine-fold gain received by Blue Financial investors or the 300% gains of Emerging Capital Partners on equity in 42 African companies are anything to go by (Farzad, 2007), doing good in Africa brings returns that are well worth the risk.

Investors and Investment Arenas Much of the rapid rise in African investments have gone to the energy sector, specifically exploration for, and exploitation of, crude oil. The financial incentive for this, as you well know, is the unremitting rise in crude oil prices, already threatening to break historical highs.

References Allstate (2008) Corporate citizenship. Retrieved February 26, 2008, from http://www. allstate. com/citizenship/investments/targeted-investments. aspx. Baldauf, Scott (2006, November 9). Has Africa finally turned a corner? :[ALL Edition]. The Christian Science Monitor,p. 01.

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