Mutual Funds for Horn of Africa

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Proposal for Creating

One Regional Mutual Fund and

Five Country Mutual Funds

for the Horn of Africa

	Executive Summary
	The Political Environment for Investments on the Horn of Africa
	General
	The Republic of Somaliland and Southern Somalia
	Ethiopia
	Eritrea
	Djibouti
	Comparisons with Eastern Europe
	Security for Investments on the Horn of Africa
	Regional Stock Market
	Attractive Investment Opportunities on the Horn of Africa Today
	Livestock
	Coffee
	The Rift Valley
	Tourism
	Irrigation
	Fishing
	Manufacturing and Services
	The Next Steps

We define the Horn of Africa as being composed of Ethiopia + Eritrea + Djibouti (former French Somaliland) + Republic of Somaliland (former British Somaliland) + Southern Somalia (former Italian Somalia).

The Republic of Somaliland and Southern Somalia evolved after the socialist dictatorship was overthrown in January 1991. Ethiopia and Eritrea evolved from the socialist dictatorship in Ethiopia, after it was overthrown in Spring of 1991.

In these 4 of the 5 countries on the Horn of Africa today, a transition is underway

Investors specializing in "emerging markets" have focused upon situations where there have been transitions from socialist dictatorships to democracies and from centrally-planned economies to free-market economies, such as in Eastern Europe. There are important differences between these transitions on the Horn of Africa and Eastern Europe that are relevant for potential investors choosing between these two regions. In many respects, these differences favor investments on the Horn of Africa over investments in Eastern Europe.

Since international investors would not be interested in investing in such country funds, which then invest half of their funds internationally as they would prefer to do themselves, the regional fund invests 100% of its funds in companies on the Horn of Africa -- diversified in a larger number of smaller investments than foreign investors could manage from outside of this region.

As the first step, we are seeking $3 million or more as seed capital to launch both the one regional mutual fund and two country mutual funds (Ethiopia and Somalia). This seed capital will flow first into the regional mutual fund which will, as an exception, invest $2 million of it as seed capital in the Ethiopian regional mutual fund and $1 million in the Somali mutual fund. Fifty percent of this capital will be invested outside of Africa, as planned for all country mutual funds. The emerging-markets mutual funds or investment companies who provide this seed capital will have a first option for managing their share of this capital to be invested outside of Africa, such as in their own mutual funds.

We will then make a very-determined effort to manage these two country funds, earning at least a small net profit in each, so that the net asset value increases steadily from quarter to quarter over the first year of operations. This will earn confidence

We are also seeking one or more investment companies with mutual funds of their own as joint-venture partners to assist us by providing know-how for creating our proposed mutual funds and managing them. They could also assist us by providing sales and redemption of shares of stock outside of the Horn of Africa. (We will use local banks on the Horn of Africa for local sales and redemption.) As an additional benefit, such joint-venture partners would have access to our local knowledge of investment opportunities for direct investments on the Horn of Africa for their own emerging-markets portfolios.

The medium-term objective of many political leaders on the Horn of Africa today is to implement systematic voluntary regional integration using the model of how the European Community has evolved in Western Europe. Therefore, it is appropriate to review the political situation within the component countries. Although the opportunities for foreign investments are already very attractive in some countries, such as Ethiopia and Eritrea, it will take a few years before investments in other countries will be attractive for foreign investors, such as in the Republic of Somaliland and Southern Somalia.

In principal, the recent wars of liberation in Ethiopia and Somalia were similar, led by liberation movements fighting to overthrow socialist dictatorships and to replace them with democracies. The main difference was that the Soviet Union sponsored the socialist dictatorship in Ethiopia with military and economic aid whereas the USA sponsored the socialist dictatorship in Somalia with military and economic aid (as a result of Realpolitik during the Cold War that placed a higher priority upon access to the airport and seaport at Berbera than local politics).

In January 1991, when the liberation movements overthrew the socialist dictatorship in Somalia, there were only dictatorships and monarchies within a radius of several thousand miles. They were frightened by the precedent of a local war of liberation succeeding in replacing a dictatorship with a pro-Western democracy. Therefore, they launched a major diplomatic offensive to block the liberation movements in Somalia from coming to power and establishing genuine democracy there. They mobilized the support of the Western democracies and the United Nations to assist them. The result was a humanitarian disaster in Somalia. Now that UNOSOM-II has left, we predict that the Somalis will sort out the mess created by foreign intervention and create stable conditions for democracy with a free-market economy -- which has been their cherished objective since the beginning of their war of liberation in the late 1970's.

In the Spring of 1991, the liberation movements overthrew the socialist dictatorship in Ethiopia. In this case, the Western democracies were pleased that the socialist dictatorship supported by the Soviet Union was overthrown -- and they cooperated fully with political and economic support by assisting the liberation movements to establish democracy and a free-market economy. The result is that the best opportunities for foreign investments and immediate economic growth are in Ethiopia today.

The Western democracies allowed self-determination in Ethiopia, by recognizing the re-creation of an independent Eritrea. They blocked self-determination in Somalia, by refusing to recognize the re-creation of an independent Republic of Somaliland (which existed in 1960, later than an independent Eritrea had existed).

Even today, the Western democracies are imposing, at the request of the non-democratic local neighbors, defacto economic sanctions against the democratic Government of the Republic of Somaliland. Using non-recognition as an excuse, they refuse to allow any bilateral or multi-lateral grants or loans to a government that they have not recognized -- in an attempt to make this Government fail.

Since 1991, unfriendly foreign governments have been spending several million USD per year in support of subversive activities attempting to overthrow the democratic government in the Republic of Somaliland, more than twice the total annual budget of its Government -- which has created instability and suffering, but has not overthrown this Government against the will of its citizens who created it democratically.

Perhaps because the level of destruction was much higher in the Republic of Somaliland than in Southern Somalia or in Ethiopia, the rate of economic growth has been substantially higher there than elsewhere on the Horn of Africa -- despite the total lack of foreign economic assistance. Despite attractive opportunities for profitable investments, the political instability caused by continued foreign political intervention makes investments by foreigners extremely difficult at this time.

The foreign intervention in Somalia since January 1991 has been focused upon Southern Somalia and its capital of Mogadishu. The goal was to prevent the liberation movements under the leadership of Gen. Mohamed Farah Hassan ('Aidid') from calling traditional clan congresses to create and elect a new democratic government. Rather, they tried to re-install the same leaders in power again, either with or without Gen. Mohamed Siad Barre as the President (dictator). Over $100 million was spent on re-arming the defeated military forces after their 3 major devastating military defeats by the liberation movements (January 1991, April 1991, and April 1992). The simplest explanation for what happened there after January 1991 was that the International Community refused to allow the war of liberation to end with a defeat for the socialist dictatorship.

UNOSOM-II left Southern Somalia divided into different regions under the control of different local factions with different political objectives, ranging from creating a fundamentalist theocracy to restoring the socialist dictatorship to creating a pro-Western democracy. There are some interesting investment opportunities in Southern Somalia today, but they will remain extremely difficult for foreign investors until the liberation movements succeed in consolidating control over all of Southern Somalia and establishing a genuine democracy with a free-market economy there.

The main currency in Somalia, particularly the Republic of Somaliland, is still the old Somali Shilling. During the last few years while this currency was issued and backed by the Central Bank of the socialist dictatorship, it experienced double-digit inflation. Now that the Government and Central Bank that issued and backed this currency no longer exist, it has been experiencing double-digit deflation! Somali Shillings are now worth more than twice as many USD as in 1991.

The supply of money is decreasing through wear and losses while the economy is expanding, driven by private reconstruction since the Government has practically no funds. A decreasing supply of currency with an increasing demand for it increases the value of the currency. Conventional banking wisdom is that one must expand the supply of money in circulation in order to stimulate an economy. Particularly in the Republic of Somaliland, there has been economic growth under the most-difficult imaginable monetary conditions -- with the supply of money in circulation decreasing instead of expanding.

The political situation in Ethiopia is quite different. After winning the war of liberation in the Spring of 1991, the liberation movements created a transitional democratic government and held several elections with foreign observers to be certain that these elections were reasonably fair. They spent several years carefully drafting a new constitution, with meetings and dialog with all major groups of citizens. This month, they are convening their first regular democratic Government, based upon their new constitution and democratic elections over the past few months.

During the transitional period, the Transitional Government tried to avoid major long-term policy decisions, preferring to defer them for the first regular Government. Therefore, we can expect the new Government to proceed to implement longer-term planning and building upon the short-term foundations already established.

The Transitional Government did pass and implement several laws creating a favorable environment for foreign investors. These laws guarantee repatriation of principal, interest, and profits for foreign loans and capital investments. They provide a typical package of tax incentives, including exemptions for import duties on capital equipment and reductions or exemptions for other categories of taxes. Foreigners are allowed to invest in local companies or projects with up to 100% foreign ownership in most sectors of the economy. There are some exceptions, such as for banking, insurance, and transportation -- where foreign investors are not yet allowed to invest but should be opened to foreign investments within a few years. Local citizens with flight capital or hard currency earned abroad are allowed to invest their external funds in the local economy under the same legal conditions as foreign investors -- if they choose to do so.

These incentives have one major technical fault, namely that the benefits only apply to foreign investments made in installments with a minimum of $500,000 each. This may simplify the administration of these incentives, but many of the most-attractive investments lie in the range from $100,000 to $500,000 each. There is also a large and attractive potential market for "micro investing" comparable to the "mini lending" programs that have been so successful in many developing countries.

Emerging-markets mutual funds place most of their equity investments in developing countries, particularly at the beginning while testing a new country, in the range from $100,000 to $500,000 per investment. This is not possible today in Ethiopia - if they want to have the full benefits from the incentive programs.

For this reason and other reasons, we are proposing the creation of two companies registered as local companies in Addis Ababa:

will be able to invest in these two local companies in blocks of $500,000 or more per investment in order to achieve the benefits from this incentive program while at the same time benefiting from the diversification in the portfolio of smaller local investments made by these two local companies. Also, as local companies, they will be allowed to invest in sectors of the economy that are still reserved for local investors, such as banking and insurance. Local investors will also be able to invest locally in local funds in any amounts.

Because of the political support for Ethiopia from the International Community, they have received commitments for several billion USD of economic aid that is already flowing to their Government and into their economy. One result is that sound business proposals usually have access to soft loans under attractive conditions, including low interest rates, usually in ratios of up to 75% credit to 25% equity capital. The missing ingredient is usually equity capital rather than credit. This is one of the reasons for our proposal to create a local venture-capital company -- to supplement the limited equity capital available with additional "venture capital" in order to qualify for the soft loans already available.

The venture-capital company will operate like conventional venture-capital companies around the World, with the exception that its focus will not be on advanced technology, but rather appropriate technology that can produce large profits and capital gains quickly in the local environment.

The former socialist dictatorship appropriated and nationalized nearly all business enterprises and major pieces of real estate, except for small trading shops and small homes. The Transitional Government has already begun and the new regular Government will continue to privatize government-owned enterprises and real-estate as quickly as possible. The result is a massive sale of nearly all enterprises and real-estate in Ethiopia which is driving the prices down because of the lack of local capital for buying all that is being offered. As a result, there are today and will be for the next few years very-attractive investment opportunities for both local and foreign investors who selectively pick the most-attractive assets being auctioned off to the public.

Our proposed venture-capital company and real-estate investment company will focus upon identifying such attractive investment opportunities.

As one particular category, our venture-capital company will identify government-owned enterprises that are currently well-managed and operating profitably. We will then offer their current managements the opportunity for a "leveraged management buyout" to acquire their enterprise from the Government. Our venture-capital company will provide from 20% to 80% of the equity capital required, matching 80% to 20% equity capital provided by the current management team according to their financial abilities, under terms that allow them to buy 100% of the ownership from the venture-capital company over a period of up to 7 years, on the basis of terms giving the venture-capital company an accumulated profit of 20% per year measured in either USD or ECUs.

In parallel, our real-estate investment company will buy the real-estate used by such enterprises from the Government and lease it to the enterprises. This is the equivalent to a typical real-estate "sale and lease back", except that the enterprise does not buy and sell the real estate at the beginning. This reduces the amount of financing that such leveraged-management buyouts require, both equity capital and credit, since they will only need sufficient financing to cover their operations. This essentially splits the risks of such projects into the separate categories of the entrepreneurial risks of operating the enterprise and the risks of owning and managing the real estate. The local real-estate investment company will be able to obtain local credit based on mortgages for the real estate that it buys.

The Government is currently very liberal in selling prime real estate at attractive prices under the condition that it will be used for a project that they consider to be beneficial to the economy. As an example, it is possible in some cases to obtain a prime property on the main street in downtown Addis Ababa today at zero cost from the Government -- if an investor presents a serious plan and proves that he has funds available and committed for implementing the plan. This improves the potential appreciation in the value of the real estate possible from a project, by starting with zero cost for the land.

There are also attractive opportunities for both the venture-capital company and real-estate investment company to become involved in financing

There are some opportunities for direct foreign investments in Ethiopia today (in units of more than $500,000 each) that can be considered by both the regional mutual fund and the national mutual fund -- without going through the local venture-capital company or real-estate investment company. As an illustrative example, the Government has partially privatized the Calub Gas Share Company, now with 60% government ownership and with the remaining 40% ownership offered to the public. This is the operating company for the largest proven gas/oil field on the Horn of Africa at this time.

The Ethiopian Birr, the local currency, has been extremely stable over the past 3 years. The unofficial exchange rate has fluctuated in a narrow range between 7.0 and 7.5 Birr per USD. The official exchange rate has been progressively brought up closer to the unofficial exchange rate, from about 5 Birr per USD 3 years ago to about 6.4 Birr per USD today. The official rate is now determined by market forces rather than strictly by the Government. Every 2 weeks, the Government holds a public auction of the foreign currencies available for release to the highest bidders. The Government plans to make the Ethiopian Birr freely convertible within one or two years, when the official rate comes closer to the unofficial rate. The major difficulty, now largely overcome, has been to gradually reduce the large subsidies from the socialist dictatorship for imported grain, sugar, and pharmaceuticals -- which are sold to the public at prices lower than the international market prices.

As a spin-off from Ethiopia, Eritrea has a similar political climate and economic opportunities as in Ethiopia. However, the population is much smaller and natural resources are limited, thereby reducing the number and size of potential investments. The economy is still closely integrated with the economy of Ethiopia. Therefore, it will initially be possible to study investment opportunities from the venture-capital company and real-estate investment company in Addis Ababa prior to creating a country mutual fund specifically for Eritrea later.

Djibouti is an artificial post-colonial entity, being the former French Somaliland. Approximately 60% of the population are Somalis, mainly from the Issa group of clans, and the remaining 40% are Afars, a Cushitic ethnic group at the same level as other Cushitic ethnic groups, such as the Somalis and Oramos (which comprise more than 40% of the population in Ethiopia). The Afars form a minority in Djibouti, but occupy the majority of the land. Their homelands are in and around the Danakil Desert, with the highest temperatures on the Earth at locations as much as 100 meters below sea level. They are currently divided politically into Djibouti, Ethiopia, and Eritrea.

Djibouti has a semi-democratic government and operates under French political, economic, and military influence. There is a French military garrison on Djibouti and the Djibouti Franc is tied to the French Franc.

The major economic activity of Djibouti is centered around its port, which is connected by a railroad to Addis Ababa in Ethiopia. It is a major trading center for parts of both Ethiopia and to a lesser extent the Republic of Somaliland (which has its own competing port at Berbera).

We plan to create a country mutual fund for Djibouti after creating country mutual funds for Ethiopia, Somalia, and Eritrea. Since Djibouti was spared from a socialist dictatorship and a war of liberation, it has not generated as much flight capital as its neighbors for investment in a country mutual fund -- and it has a relatively small population.

Except for the highlands in Ethiopia, all of the Horn of Africa is heavily influenced by nomadic mentalities and traditions -- where each nomad recognizes no sovereignty other than God or Allah over himself and is a priori a private entrepreneur. In Eastern Europe, most citizens are so accustomed to a powerful socialist state taking care of them, that they simply wait for either their governments for foreign investors to "create jobs" for them -- and they are selective about the quality of jobs they are willing to accept. On the Horn of Africa, hardly anyone is asking their governments or foreign investors to "create jobs" for them. Rather, they only ask their governments to create a simple infrastructure with no interference from the government so that they can resume activities as private entrepreneurs.

There are several important reasons why the economic atmosphere on the Horn of Africa is much stronger in favor of a free-market economy than in Eastern Europe:

These differences in mentality are a key factor explaining why economic growth with minimal foreign aid on the Horn of Africa is today producing much faster economic growth rates than massive foreign aid is producing in Eastern Europe. Also, the lack of Mafia-like organized crime on the Horn of Africa makes life easier for entrepreneurs than in Eastern Europe.

Political stability and local security are generally much better than portrayed in the international media. Humanitarian relief organizations have a vested interest in exaggerating the scope and size of problems, such as famines, in order to obtain more donations for their own operations. It is essential for foreign investors to base their investment decisions upon the real risks for their investments rather than hysteria generated for political and other reasons.

Due to the quite different traditions and ethnic complexity on the Horn of Africa, traditional methods for securing investments are required -- and European-styled insurance policies are largely ineffective.

As an example, our partner company in Addis Ababa, Ethio-Global Enterprises Pvt Ltd, has had a successful transportation operation in Eastern Ethiopia for 3 years -- which is considered to be the most-dangerous area of Ethiopia to operate. They have organized about 50 local truck drivers driving their own trucks primarily for transporting food and supplies to the refugee camps under contract to the UN and related organizations. Most international organizations complain about their vehicles and freight being stolen and are not willing to provide transportation in this region.

There are many different clans living in traditional competition with each other in this region. Ethio-Global maintains cordial relationships with the clan leaders of all clans where it operates. It uses drivers from each of these clans in numbers matching the sizes of these clans, so that all clans benefit proportionately from their operations. Ethio-Global has not had a single incident of a stolen vehicle or stolen freight!

Ethio-Global even offers its services free-of-charge to the UN and related agencies when their vehicles are stolen in this region. In each case, Ethio-Global has been successful. They identify the clan of the thieves first, meet with the clan leaders to explain how the operation benefits their clan, negotiate the release, and only at the end involve the police and local governmental officials to provide an escort for the safe return of the vehicle. In the case of a German vehicle stolen 1 1/2 years ago, Ethio-Global even arranged for the thieves to repair some damages to the vehicle and fill its tanks before returning the vehicle!

Foreign companies and relief organizations that violate local traditions and practices in this region provoke looting of their vehicles and supplies. (This was a major problem in Southern Somalia. Some relief organizations, such as the Red Cross, were able to operate much-more safely alone, relying upon their own local know-how, than with the assistance of UNOSOM military forces "protecting" them.) Foreign companies that comply with local traditions and practices generally do not have such problems and are ultimately exposed to risks from looting and theft that are lower than in many areas of the USA or Western Europe.

The key to security for operations on the Horn of Africa is a professional concept for risk-management tailored by local experts -- which will be quite different from the risk-management concepts used in Europe and North America. Professional investors with professional local advisors can operate on the Horn of Africa today with acceptable levels of risks.

In the medium term, it will be necessary to have a functional Regional Stock Market in Addis Ababa serving the whole Horn of Africa. This is essential for both mutual funds and our own Venture-Capital Company in Ethiopia to be able to invest directly in local companies. Quotations on a local stock market will provide the basis for calculating the net asset value per share of stock in the mutual funds as well as providing liquidity for quickly and simply selling shares of stock as appropriate.

There is no such Regional Stock Market on the Horn of Africa today. However, we are in contact with partners with whom we could cooperate to quickly establish one. It will be our goal to establish over-the-counter trading with prices quoted in local newspapers within one year of launching our operations -- and to have a more-formal Regional Stock Market operational within about two years.

Following are only a few examples with major potential for profitable investments on the Horn of Africa:

The livestock of the nomads on the lowlands, not including the livestock of farmers on the highlands and Southern Somalia, represent a valuable resource that is currently available, but not being exploited due to deficiencies in the local infrastructure.

As a concrete example, Ethio-Global recently tried to organize the export of 2-year-old bulls from Eastern Ethiopia and the Republic of Somaliland through the port of Berbera to Saudi Arabia. The value of this two-year contract with one Saudi buyer was $400 million per year or $800 million in total. There was no problem in finding more than enough 2-year-old bulls for export. This project ultimately collapsed due to the lack of banking and telecommunication capabilities in Berbera -- required for normal export payments via letters-of-credit. It was simply too complex to arrange payment via letters-of-credit to banks in Addis Ababa or Djibouti, based upon confirmation that livestock had been loaded at the port in Berbera.

Only 1/8 of all animals kept by the nomads in Eastern Ethiopia and the Republic of Somaliland are cattle. There are more sheep, goats, and camels than cattle. Our detailed analysis shows that this region could easily sustain exports of live animals and livestock with a value between $1 billion and $2 billion per year for several years, mainly to the Arabian Peninsula -- if the infrastructure were available. The International Community was amazed that the Government of the Republic of Somaliland was able to increase exports of live animals and livestock through Berbera to about $80 million in 1994 -- without realizing the vast untapped potential still not being exported.

There is an almost equal untapped potential in this region for establishing modern slaughterhouses. Countries such as Egypt and Israel have a strong interest in importing chilled meat from the Horn of Africa. Russia is interested in starting daily transport of chilled meat on a large scale from Eastern Ethiopia.

There is also a strong international market for leather from the skins of animals and livestock from this region. By establishing local slaughterhouses, it would be possible to retain the valuable skins for local processing into leather and leather goods. Sheepskins and goatskins have traditionally been exported to Italy for making fine leathers for the fashion industry.

Coffee originated in the Kaffa Region of the Ethiopian highlands -- from which the name "coffee" is derived. Wild coffee plants still grow in Kaffa, but most of the Ethiopian "Arabica" coffee is now grown in the Sidamo Region in the highlands. Ethiopian coffee traditionally achieves a premium price on the international coffee market. Over the past 1 1/2 years, the price of coffee on international markets tripled and has now settled back to about twice the price levels that prevailed until January 1994. There is a very-large potential for drastically increasing the production of premium-grade Arabica highland coffee in Ethiopia today.

The former socialist dictatorship created a government-owned monopoly over buying, processing, distributing, and exporting coffee -- which has grown into an extremely-large bureaucracy. Quite independent of the international prices for coffee, this expensive bureaucracy provides low prices to the producers of coffee, thereby discouraging new investments for increasing production. When Uganda removed a similar government monopoly over coffee a few years ago, the production and exports of coffee from Uganda quickly doubled. The same is possible in Ethiopia today.

There are similar investment opportunities in agriculture, such as for tea, sugar, grain, and citrus-fruit plantations. Ethiopia produces very-high quality wines in its highlands in low volume, which could quickly be expanded for export sales. It has just begun exporting bottled mineral water in large quantities to the Arabian Peninsula.

The Rift Valley starts in South Africa, wanders up through Africa to the Red Sea, and continues northward into Asia. It is known for its numerous deposits of valuable metal ores and gemstones. A greater length of the Rift Valley passes through Ethiopia than any other African country. Yet, geological maps showing valuable mineral deposits along the Rift Valley are largely blank on Ethiopian territory. This is not due to the lack of ores and minerals in Ethiopia, but rather due to the lack of systematic exploration in Ethiopia. There are some producing gold mines in Ethiopia, which the Government is trying to privatize, and some semi-precious gemstones are exported, mainly illegally, such as green peridots. There are many opportunities for investments in the nearly virgin mining industries of Ethiopia and Eritrea.

Geothermal activity and energy are associated with the Rift Valley in Ethiopia -- as well as along the coast from Eritrea through Djibouti to the Republic of Somaliland. This is one of the largest concentrations of geothermal energy near the surface anyplace in the World. However, it is located either

However, the combination of large supplies of natural gas in Ethiopia and potentially the Republic of Somalia, large supplies lignite (brown coal) in the Republic of Somaliland, and salt deposits along the coast create the basis for an interesting chemicals and fertilizer industry -- when combined with inexpensive geothermal energy.

As elsewhere in Africa, the Rift Valley creates scenic beauty in Ethiopia that attracted substantial tourism until the socialist dictatorship. The geothermal energy creates many naturally-hot mineral springs which have traditionally been used for medicinal baths. There is already an infrastructure of tourist hotels and resorts along the Rift Valley South of Addis Ababa. There are many attractive investment opportunities for buying these hotels from the Government, renovating them to modern standards, and operating them to promote foreign tourism -- particularly from the nearby Arabian Peninsula. The climate is moderate the year around in the highlands of Ethiopia, whereby the average temperature in July and August is about 2^oC lower than in Paris.

Another important tourist attraction, which can be combined with the Rift Valley for European tourists, is the monolithic rock-hewn early Christian Churches North of Addis Ababa.

Ethiopia has approximately 90 different ethnic groups, each with their own language, culture, and traditions. This provides a great diversity of local art forms and music -- which is another complementary tourist attraction. Traditional and religious paintings and jewelry are important export products -- often to tourists.

The oldest religion on the Horn of Africa today is animism in various forms as practiced by different ethnic groups. Approximately 20% of Ethiopians today still are believers in animism, but it has nearly disappeared in the other countries on the Horn of Africa. Starting around 1000 B.C., Judaism had a strong influence on the Sabeans on both sides of the Red Sea, emanating from Southwestern Arabia to the Horn of Africa. The community of Falasha Jews was established in Ethiopia at the time of King Solomon. Even during the time of Jesus Christ, the Christian religion spread to Southwestern Arabia and was making its first impact across the Red Sea in Ethiopia. Likewise, the Islamic religion followed, during the lifetime of the Prophet Mohamed, to Ethiopia, starting out in the lowlands and gradually moving up to the Christian highlands. Today, the population of Ethiopia is approximately 20% animist, 40% Christian, and 40% Moslem. In Eritrea, the population is about 50% Christian and 50% Moslem. In Djibouti and both Somalias, the population is about 99% Moslem.

There have been major conflicts on the basis of religion in the past, but the Christians and Moslems have generally lived peacefully with each other over the past 100 years. Some frictions have arisen lately, mainly as a result of Islamic fundamentalists and Christian missionaries provoking the other groups of believers. Even in Somalia, with 99% Moslems, there is a high level of religious tolerance for other religions -- which has irritated and provoked Islamic fundamentalists elsewhere to intensify their activities there.

As a general rule of the thumb, the levels of rainfall increase and the temperature decreases with increasing altitude. There is practically no rainfall at all and very high temperatures along the coast of the Horn of Africa. The highlands have moderate temperatures the year around and two moderate rainy seasons.

Many important rivers have their origins in the highlands of Ethiopia, of which the Blue Nile is the best known. The Atbara is a major tributary to the Nile North of Khartoum, after the Blue and White Nile have combined at Khartoum. The Juba River flows into the Indian Ocean near Kismayo in Southern Somalia. The other rivers do not get all of the way to an ocean. The Shabelle River passes by Mogadishu and goes South, drying up before it reaches the Indian Ocean. The Awash River flows along the Rift Valley across Ethiopia until it disappears in the Danakil Desert. The Omo River flows into Lake Turkana in Kenya.

There has been large-scale deforestation on most of the Horn of Africa together with substantial soil erosion. However, since most of the rivers do not flow into an ocean, much of the eroded top soil is merely transported from one location to another. Along the Atbara, Blue Nile, Omo, Juba, Shabelle, and Awash Rivers, there are many opportunities for irrigation. Irrigation along the Juba and Shabelle rivers in Southern Somalia has been a major factor in their economy -- particularly with banana and citrus-fruit plantations for exports.

At the moment, the best investment opportunities are in Ethiopia, both for the local production of irrigation pipe and supplies as well as irrigation projects. All large irrigation projects were nationalized by the socialist dictatorships and most are now badly run down. There are opportunities for acquiring and renovating government-owned plantations for irrigation as well as for creating new privately-owned plantations for irrigation.

The Horn of Africa has a coastline of about 3,500 Km on the Gulf of Aden and Indian Ocean, as well as a shorter coastline on the Red Sea. This coastline has one of the highest concentrations of plankton anywhere in the World -- and a matching production of fish, both shallow-water and deep-sea fish. It is also one of the most-heavily fished waters in the World. The lack of an internationally-recognized government in either the Republic of Somaliland or Southern Somalia has resulted in many fishing nations concentrating their activities here -- where they can fish without control or paying license fees. The lack of national control over these waters has also led to oil tankers choosing these waters for flushing their tanks without risk of punishment -- leading to increased pollution of these waters.

The French fishing fleet, stationed partially in Djibouti, catches approximately 50% of all fish from the Indian Ocean that are imported into the European Community each year. (The Spanish fleet catches much more than 50% of all fish caught on the Western Coast of Africa that are imported into the European Community.) Particularly the large quantities of premium-grade lobsters and crabs could be exploited more intensively. A local fishing industry, with appropriate local protection from overfishing by others, will play an important role in the economy of the Horn of Africa in the near future.

The people on the Horn of Africa are industrious people with very-low wage levels. In Ethiopia, secretaries working for the Government earn less than $100 per month, but slightly over $100 per month when working for private enterprises. University graduates usually earn a few hundred USD per month.

In the late 1970's over 60% of all Somalis were literate. The long wars of liberation in both Ethiopia and Somalia caused a breakdown in their educational systems, so that literacy levels have dropped significantly, probably to about 20% in Somalia where over 50% of the population is less than 18 years old.

The combination of cheap labor, hydroelectric energy, natural resources, and agricultural products together with substantial local markets and regional export markets makes the Horn of Africa attractive for manufacturing operations.

The same applies for services, both locally and regionally. The Horn of Africa traditionally supplies a large fraction of the foreign workers in Saudi Arabia and the Emirates -- at all levels, from unskilled domestic workers to highly-skilled managers, engineers, bankers, etc.

The city of Addis Ababa is the regional capital for the Horn of Africa and the home of many international organizations, such as the Organization of African Unity, the African Development Bank, many local headquarters of UN organizations, etc. There are approximately 300,000 foreigners residing in Addis Ababa, mainly employees of these international organizations and their families. This is a typical international community, including schools from many different countries offering instruction in both local languages as well as the foreign languages of the sponsors, such as English, French, German, Italian, Greek, Arabic, etc.

This community of 300,000 foreigners within Addis Ababa is like a small city with 300,000 residents in Western Europe. They have a distribution of incomes typical for Europe. Therefore, they generate a market for products and services like a small city in Europe. One growth sector consists of providing swimming pools, saunas, tennis courts, etc. for leisure activities. There is a strong market, not yet adequately-met locally, for personal computers and related software.

We are interested in developing high-tech services for export from the Horn of Africa -- in order to enter at the ground floor of this new category of exports. As typical examples, Swiss Air has the computers for its central reservations and booking system in India and several New York investment companies and stock brokerage companies have the computers for processing their transactions in Ireland -- in both cases due to lower labor costs. A large number of Ethiopian and Somali computer experts are working for European and American computer companies. It may be possible to bring some this know-how back to the Horn of Africa, for designing hardware and software locally as a service for international markets. Ethiopia already has a good telecommunications system, capable of providing high-quality telecommunications via satellite internationally, particularly from Addis Ababa. The University in Addis Ababa has departments for science and engineering, which should be improved selectively in some areas of new technology.

4 The Next Steps

We are seeking partners who will cooperate with us by providing know-how and seed capital for founding

This will provide the basis for starting operations at an acceptable minimum level, establishing a positive track record, and then actively marketing shares of stock in these mutual funds.

We are open to negotiations on the details of how this project can best be implemented and managed. This includes the selection of Directors for the Boards of Directors of the Funds and Companies to be created as well as procedures for reviewing investment decisions before implementing them.

The next step is for potential partners to negotiate with us on the ways that they wish to cooperate with us on this project. We can provide more-detailed information and examples in such discussions. We can also document our own experience and know-how for such projects.

[Note for writers: Bookmarks are installed at the beginning of each chapter, i.e. #1, #2, #2.1, #2,2 etc.]