Emerging Afghanistan: Spotting the Opportunity

Although not highly publicized until recently, Afghanistan’s rich mineral reserves have been known about since the 1980’s, when the occupying Soviets began collecting geological data. Although some believe that the data was “forgotten”, it is hard to believe that U.S. intelligence knew nothing about it prior to our occupation of a country best known for its rugged terrain and opium production.


Now that the proverbial cat is out of the bag, what are some of the economic implications for the region, the United States and investors? The potential for Chinese business to capitalize on Afghanistan’s “newfound” wealth is tremendous for several reasons. The first is that India’s need for natural resources will increase, due to the growth of their manufacturing sector, particularly that of Lithium batteries.

Second, half of India's workforce is employed by agriculture, leaving ample room for continued growth of infrastructure, industries and urban areas. Although India has substantial mineral reserves of its own, it currently lacks infrastructure to exploit them to the degree required for high sustained growth.

Lastly, India has a barrier to obtaining raw materials from Afghanistan, namely Pakistan. India conceivably could transport these through Iran, but this would create severe tensions that could damage their relationship with the United States. Although India has made some progress building ties to Afghanistan, implementation will be a challenge, leaving China as one of India’s best possible sources of Afghani raw materials. 

Another factor that will allow Chinese businesses to profitably exploit Afghanistan’s mineral wealth is their model of allowing other nations to locate deposits and provide the Afghans with administrative support, while buying the deposits themselves. An excellent example of this model at work was their winning bid for rights to the Aynak Copper Mine. Although China has been accused of bribing Afghan officials to win the mine’s mineral rights, Colorado-based Gustavson Associates LLC was, at least for a time, a retained transaction advisor to the Afghani Ministry of Mines. Interestingly, Gustavson’s relationship with Afghanistan’s Ministry of Mines, dates back as early as 2004.

How might one identify a profitable investment in this convoluted situation? First, keep an eye on the Chinese supply chain to India, and second watch the mineral rights contract flow in Afghanistan. If you see a series of deals that can potentially link India and Afghanistan via China then there likely is an embedded investment opportunity.

Mongolia: A New Frontier For Energy & Natural Resources

An important dynamic in China’s expansion is the role of Mongolia. Mongolia is one of the world’s most mineral-rich areas and provides many of the raw materials that China needs in order to build up the second and third tier metropolitan areas required its growing middle class. In addition to its abundance of natural resources, there is a well-established transportation infrastructure that links Mongolia’s mining areas to distribution hubs inside the Chinese border. These factors have made Mongolia into an important emerging market and are driving its economic evolution.

As its economy matures, Mongolia is transforming from what some would call the “wild west” into a natural resource power. Prior to 2000, as a result of years of strict Communist rule, Mongolia’s economy was driven primarily by agriculture. As China grew into an economic power, the demand for Mongolian natural resources increased and created opportunities for companies including Ivanhoe Mines, Ltd. and Monseka Mining Company. Businesses such as these built sound public and private sector relationships that have helped increase Mongolia’s GDP to over $5B with an 8% annual growth rate.

The Mongolian government’s relationships with foreign mineral and mining companies, combined with its industry privatization policies are creating a hotbed for IPOs in Hong Kong, Tokyo, and Seoul. Given the capital that is flowing into this market and the time required for Mongolia to develop home-grown mineral and mining businesses, one can expect that that the foreign companies in Mongolia today will dominate the mineral and mining industry there for some time to come.

China's Innovation Growth Strategy

Although the Chinese have caught up to the U.S. in low-value manufacturing, they still lag behind the United States in high-value manufacturing, technology and home-grown management expertise. This however is changing. China is walking the thin line of acting as a consumer of manufacturing and technical expertise, while leveraging this consumption to develop its next generation of innovators and entrepreneurs.


Last year when China authorized its first solar energy plant, it required at least 80% of the equipment to be made domestically. On the other hand, the Chinese government is highly willing to welcome companies like Applied Materials that are building large research and development facilities; so welcoming, that Applied Materials CTO Mark Pinto is now located there.

If China continues to successfully maintain its strategy of balancing consumption and development of technical and manufacturing expertise, it eventually will lead the United States in both low and high-value manufacturing, and one day will rival the United States as a global innovator. As the wave of Chinese innovation builds, it would not be surprising to see an IPO market revival start in Asia.

Solar Thermal Could Drive the Next Real Estate Bubble

Solar Thermal or Concentrated Solar Power (CSP) is one of the oldest methods of generating solar energy, with the first Solar Thermal patent having been granted in 1891. The idea is simple: concentrate enough solar energy onto a fluid such that the fluid can either store heat or be converted to a gas form that drives a turbine. The ability to store energy as heat for future power generation is one advantage the CSP has over simple photovoltaic (PV) cells.


CSP technology has been used extensively in Israel and in the United States for heating water however the question is whether it can be used effectively to generate electricity on a large scale. The U.S. Department of Energy (DOE) is betting that CSP technologies can be scaled to the tune of $62 million, and thirteen companies ranging from Pratt & Whitney to SkyFuel, Inc. are the beneficiaries.

One interesting side-effect of the move towards CSP is the impact on land values in places that have never experienced a real estate bubble. Large-scale CSP has two important requirements: lots of sun and lots of space to place solar collection and heat conversion devices. The Mojave Desert is fast becoming a mecca for CSP generation facilities. In the last six years, the cost of private land in the Mojave Desert has increased twenty-fold, from around $500 an acre to $10,000 an acre.

Should CSP prove to be a big hit, we will see land booms and bubbles that could well exceed that of recent housing markets. This actually could benefit economies in Africa where investors will be less concerned with whether the land is arable, than how much sun shines on it.

Back To The Future: Social Networking Consultancies

Technologies that build on the notion of organizing cyber-tribes and communities have emerged over the past ten years. Social networks are commonplace and product-centric communities have taken hold in both business and consumer marketplaces. “Community Manager” is a key role in many newer businesses, and is becoming prevalent in more mature industries.

Startups that provide technology to identify tribes (e.g., Quantcast, RapLeaf), and analytics that can identify tribal trends (Jaspersoft) are growing. New companies such as Sense Networks build technology that segments individuals based on their physical movements.

Consumer segmentation that traditionally has been based on demographics and highly specific buying habits has changed and now includes fluid location data and social links. This shift in what constitutes a consumer segment will lead to large opportunities for new types of systems integrators and technology strategy businesses.

The primary reason is that large corporations will be inundated with tribal data, dashboards and analytics but will be unsure how to craft and execute business strategies that derive revenue from those tribes they identify. They will need a guide who can help sort through the glut of segmentation and analysis tools, and implement tribal marketing and technology initiatives that are aligned with their business strategy.

It is interesting how few tribal identification and analysis technology companies have started professional services teams. JitterJam has a marketing strategy offering, while Omniture and Jaspersoft have consultants for hire, but many businesses in the space either are extremely technically driven or simply lack the resources or expertise to take advantage of this emerging opportunity.

It would not be surprising to see entities that look like some of the old dot-com strategy businesses emerge. Remember marchFirst, Scient and Viant? We could end up seeing social network oriented versions of these companies in the not so distant future.