The Oldest Investment In Africa?
Regular readers will know about my love for social investing. There's something inherently awesome about being able to invest my money in a place where it gives me the return I need whilst helping somebody else earn a living instead of going towards massive bonuses for fat cat bankers so they can buy the penthouse in St Tropez or have their Lamborghini chromed.
Having moved to South Africa from the UK 6 years ago, I've tried my best to learn about the African culture as I make this beautiful, sometimes crazy and often misunderstood country my home. One thing I learned about recently is the African custom of Lobolo.
Lobola is a customary african marriage which amongst many other strict rules and traditions, only becomes binding when a Lobolo is negotiated, agreed and paid between the potential groom and his bride's family. Traditionally this would involve a number of cows to be paid to the bride's family in return for her hand in marriage. These days it tends to be more of a cash payment (Cow's take up alot of space) that are based on the equivalent cash value of the agreed number of cows. Getting to the amount required is a complicated process based on a number of factors, many of which I am yet to understand but needless to say, if you are a young african man ready to pop the question to your african queen, you best be a cattle farmer or have saved your hard earned cash.
Being the entrepreneurial fintech hotbed that the content of Africa has become, (Did you know Africa leads the world by some margin when it comes to the adoption of crypto-currency and digital payments?) companies are beginning to provide services to young successful men who need to save for Lobolo before they can ask their partner to marry them. This has opened up a new asset class for the socially minded investor like myself even though Mrs H and I married last year and luckily for me, the celtic traditions that we followed only required the exchange of whisky between the clans family. It was good whisky, but it didn't come close to the cost of a herd of cattle.
I made investments recently in one such fintech based in South Africa, Livestock Wealth. They offer a growing number of social investments including, Free Range Oxen, Macadamia Nut farming, Pregnant Cows and Smart Connected Gardens.
The returns are not too shabby either.
The Macadamia Investment is the most accessible at R2000 / $120 / £100 per tree. It takes 6 years for the tree to bear a harvest and when it does, you receive around 100% return on your investment. That is an annual rate of return of 11% , pretty good if you're starting out with not much money to invest, although your money is locked up for 6 years.
More preferable to me is the cattle investments of which you have a choice of two:
A Free Range Ox with an investment term of 6 months for
A Pregnant Cow with an investment term of 12 months
In the first instance, you simply buy the Ox for R11,500 / $675 / £550 and it is taken care of on the farm on your behalf for 6 months and then is sold at market. The average return on that deal is 6% or around R650 / $38 / £30. bearing in mind that's over 6 months, the annual return of 12.5% assuming you reinvest your profit at the 6 month mark. Now that's pretty a pretty awesome return for a 6 month investment. The risk is also relatively low as the Ox is replaced should it fall ill before being sold so your main risk is that the cow doesn't achieve the desired weight to provide a return or the value of the meat at market dropped significantly. You can research the likelihood of either scenario but as far as I'm concerned, that is negligible risk in my book.
The second investment is very similar in that the pregnant cow is bought by you at a cost of R18,730 / $1100 / £890 and you own it for 12 months until it gives birth, rears the calf and then the calf is fully grown. The return averages R2,250 / $132 / £107 so is around a 12% annual return. Again risk is minimal in terms of the cow or calf's health as it would be replaced for the purposes of your investment if something happened so you're variability comes from the quality of the calf and it's relative value at market. In my opinion, again, this variability is relatively small and Livestock wealth even gives you minimum and maximum return forecasts which mean at worst you'd see a 10% return and at best 14%, any number at double figures works for me.
So I dived in and purchased my first pregnant cow in June and have just purchased another in July. Livestock wealth have a good website which explains things simply and also an app so you can keep an eye how things are going. It took around 2 weeks from investing to having my actual cow allocated and you get sent a certificate of ownership (digitally) and a picture of your cow:
Once this is done, this is pretty much an "invest and forget" kind of deal, I'll know in June 2022 how much Son (or daughter) of Gertrude was worth and if he/she made me 10% or 14%, I guess I'll do an update post then. For now, my strategy for Live Stock Wealth is as follows:
In year 1, I'm going to buy a herd of 12 cows by buying one pregnant cow per month for 12 months. This will mean a total investment of R225,000 / $13,250 / £10,700. At the end of year 1, I'll then start to receive a monthly income of R2250 / $132 / £107. The remainder will get reinvested back into the heard to maintain 12 pregnant cows at any one time so the income becomes permanent. This also means it will take exactly 100 months or just over 8 years to recoup my total investment.
Because of the magic of compound interest and the fact I'll reinvest that monthly return somewhere else (let's assume with the same return) I'll actually make my R225k / $13k / £10k back in 6 years.
After 6 years has passed (and I'll still only be 50 years old), that investment will give me R27,000 / $,1600 / £1,300 per year for life with no investment and almost no effort (reinvesting the money every month in another cow should probably take around 10 minutes per month).
That might not seem a lot of money to you but when you consider that R2,250 / $132 / £107 per month is around 3.6% of our total monthly living expenses, that it is a pretty much zero effort investment and that cattle has been farmed in Africa since 5900 BC so risks should be minimal, it's a pretty solid investment in my opinion.
Now add to that thought that if I decide to scale that investment up instead and re-invest all of that income back into increasing the size of the heard until, let's say. I'm at normal retirement age of 65 (21 years from now), then I'd have a herd of 130 cows and an annual profit of R260,000 / £15,300 / 312,400, which incidentally is then 35% of my total living expenses.
Also consider that when I die, I can leave that investment to our family and it will keep paying out for generation after generation.
And then finally consider that after all of that income and return, it will create countless jobs in South Africa and help the economy:
It's an investment proposition worth considering.
Of course, anything could go wrong, I'm not a farmer and I don't understand how farming works and if there are risks I haven't considered, but if I worried about such things, I wouldn't have retired at 43 would I? I guess the company could go bust, everyone could turn vegan sending prices plummeting, a whole bunch of things could go wrong, but if they don't, I'll do OK. You do you though and do your own due diligence.
So for now, I'm 2 cows in and 10 to go, if you'd like to see how it goes and find out if I indeed end up being a virtual farmer with 130 pregnant cows in my herd, why not subscribe to my blog and be amongst the first to know.
Until then, keep living.