In "Diamonds, Gold, and War: The British, the Boers and the Making of South Africa" by Martin Meredith, published in 2007, there was one short paragraph that stood out for me.
"Thus, the Rhodes conspiracy ended as it had begun: in collusion, lies and deceit."
Collusion, lies and deceit could well describe a whole host of issues today.
So why read this book? Natural resources are as vital as ever, and with many of the “future-facing” commodities coming from Africa, an understanding of the "Scramble for Africa" gives investors context around the history and geopolitics of the various countries. The book focuses on Southern Africa and highlights that the human characteristics of ambition, lust for wealth and power, ego, racism and xenophobia may be unchangeable. It also shows how technology and markets were used by elites for their own purposes. It could be argued it is the same today.
This is first and foremost a history book. Many gurus, such as Jim Rogers or James Anderson, have stressed studying history is an important element to investing success. The technologies of the industrial revolution drove the opportunities available to the major figures of this book. As we are still at the beginning of the fourth industrial revolution, we can learn how to approach various situations we may find as investors.
Rhodes, of course, is Cecil Rhodes, founder of Rhodesia, which is now Zambia and Zimbabwe, and founder of De Beers, now a division of Anglo American PLC (LSE:AAL, Financial). This book is a must-read for anyone interested in South Africa as it covers the volatile and important period of 1871 to 1910, which includes the run-up to the Second Boer War, the war itself and its aftermath, which ultimately led to the creation of the Union of South Africa in 1910, the forerunner to today’s Republic of South Africa.
The book covers the creation of De Beers and the birth of the diamond industry, the Witwatersrand Gold Rush and the establishment of Johannesburg and the fractious relationship between the British Empire, its colonies (Cape Colony and Colony of Natal) and the Boer republics of Transvaal and the Orange Free State, which led to the Second Boer War and resulted in the Treaty of Vereeniging.
While much of the book focuses on the tension between the British and the Afrikaners (largely Dutch immigrants) across Southern Africa, it also sets the conditions which led to Apartheid.
The first few parts of the book cover the establishment of the diamond industry centered on Kimberley in the Northern Cape. Through a combination of hard work, cunning and manipulation, Rhodes consolidated various diamond mines, through several takeover battles, into De Beers (named after the farm on which the De Beers diamond mine was developed) and created “the most powerful company in the world.”
Rhodes also co-founded The Gold Fields of South Africa - which today is one of the world's largest gold mining companies, Gold Fields Ltd. (GFI, Financial) – and the wealth he derived from mining enabled him to create the British South Africa Company, which gained a royal charter and became the vehicle for his imperial ambitions. Rhodes didn’t end up as wealthy as other mining magnates, as he was focused on gaining power and political influence as he dreamed of a global British Empire and made it his mission to strive for a policy of “Cape to Cairo,” whereby the British Empire dominated the spine of Africa. For a time, he was the prime minister of the Cape Colony and was almost certainly the most powerful man in Southern Africa. The book also includes the story of how he created Rhodesia. In a way, it is a semi-biography of Rhodes.
You could argue that Rhodes was the Donald Trump, Elon Musk or Jeff Bezos of his day. First, building a business empire allowed him to leverage his political sway. He bought newspapers to influence public opinion and sought political power to allow him to expand “civilization” into frontier areas; in this case, the African interior. It could be argued today that Musk needs Twitter (TWTR, Financial) as his primary public relations tool, so it makes sense why he bought it.
The other main figure in the book is Paul Kruger, the president of the Transvaal Republic. The Witwatersrand Gold Rush caused a dilution of the Boer race with British subjects in Transvaal and the lack of political rights for non-Afrikaner whites caused great tension. Rhodes and his associate Dr. Leander Starr Jameson, via the British South Africa Company, schemed to take control of Transvaal (primarily Johannesburg and Pretoria) by force. Although Rhodes eventually wanted to abort the move, Jameson went ahead anyway, but was unsuccessful. This was known as Jameson’s Raid, and it increased the tensions between the British Empire and the Boers even more. On top of the political situation was the fact thhe Transvaal government held a monopoly on the dynamite needed by the mining industry, which was largely controlled by British businessmen.
Although ego and lust for power from men on both sides ultimately led to the Boer War, control over the gold resources, which at the time were producing nearly one-quarter of the world’s gold supply, was also a key factor. However, some of the mining magnates wanted to avoid war at all costs because they worried about the impact on their profits. Similarly, in the Russia-Ukraine war today, several oligarchs are working for peace because war is bad for business.
After the war, which ran from October 1899 through May 1902, British rule didn’t last long. In 1906, when a Liberal government under Sir Henry Campbell-Bannerman came to office, replacing the Conservatives, it quickly ceded control to the Transvaal and the Orange River Colony (formerly the Orange Free State) to allow self-government. By 1910, the four states had agreed to a union and the Afrikaners regained power. Afrikaner leaders turned their attention from fighting British imperialism and Anglo-Jewish capitalism towards Afrikaner domination at the expense of the native population, which led to Apartheid being introduced in 1948. Although Apartheid isn’t covered in the book, the context and conditions for Afrikaner nationalism gaining strength are clear throughout the book. Today, we need to carefully watch political ideology. The book is written in a way that seems balanced, showing the both the deeds and misdeeds of the British, the Boers and the natives.
The environment one and a quarter centuries ago is not too dissimilar to that of today. Rhodes and the other “Money Kings” and "Randlords" (the gurus of their day) relied heavily on the stock markets for financing. Speculative booms and busts were frequent in both diamond and gold mining stocks listed in London and Johannesburg. Te Johannesburg Stock Exchange, now run by JSE Ltd. (JSE:JSE, Financial), was founded in 1887. As insiders, the “Money Kings” were able to issue equity to themselves at a low price and sell it high based on their superior knowledge of the reality of business conditions on the ground.
The media also played an important part, so Rhodes and others used the newspapers to their advantage. The use of technology and infrastructure was an important factor throughout as access to telegraph lines and the build-out of the railway system in Southern Africa and use of steam engines were key tools for the elites such as Rhodes.
Rhodes and Kruger were not afraid to take risk to achieve their objectives, but they were able to make things happen because of the resources they controlled. While many others went bust in speculative business or political ventures, Rhodes and Kruger built up power aggressively but also carefully. Today, there are many new industries that have sprung up thanks to the fourth industrial revolution and developments in digital technology. As value investors, we need to really understand what is going on and ideally have an element of control to reduce our downside risk. We shouldn’t get sucked in to the modern day gold rushes that are happening all around us.
In the book, there are also important cameo appearances from Winston Churchill, Rudyard Kipling, Nathaniel de Rothschild, Mahatma Gandhi, Queen Victoria and various African tribal chiefs. The emotions of greed and fear are present throughout the book and, like most wars, the Second Boer War was certainly avoidable. The speculative mania and xenophobic tensions witnessed in that period have repeated themselves in other episodes of human history and are present today in Ukraine. Political ideology is important. A change of government can change everything in an instant, but if underlying problems (such as the increased tensions caused by the Jameson Raid) are not fixed, they are bound to come back to haunt us sooner or later. As a result, we should pay attention to the cracks since they could cause a collapse if not taken care of.
One is also reminded of the French phrase “plus ça change,” which expresses the resigned acknowledgement of the fundamental immutability of human nature and institutions.
There is a lot to learn from "Diamonds, Gold and War,"both in a historical context and as an important analogy to today’s environment, as big actions always have big consequences. Wealth and power are built up carefully, not speculatively.
