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© UBS 2010. All rights reserved.
Together we can
make dreams come true.
UBS Optimus Foundation.
Wealth Management Research April 2010
UBS investor’s guide

Special edition
2010 World Cup in South Africa

“I dream of becoming a doctor and
helping sick children. Surprising Africa
The host’s economy • How to invest in Africa
For my dream to come true, I have
to be able to go to school.” And the World Champion is …
Money can buy you a Ronaldo, but not a World Cup •
Alem Zelleke, 14 Muscle drain or muscle gain?
Ab
www.ubs.com/optimus
Contents Editorial
Editorial 3 You will find a comprehensive Dear readers,

glossary of technical terms
In only a couple of weeks, the 19th Football World Cup will finally
on the internet site
Focus on Africa 4 www.ubs.com/glossaire kick off. Lionel Messi, Cristiano Ronaldo, Wayne Rooney and their
If you require further information on
colleagues will dazzle fans with their magic. Or, in some cases (let’s
South Africa Economy 10 the instruments or issuers mentioned in hope not too many), they may fail to live up to the hopes built up
this publication, or you require general since the last contest in Germany four years ago. Whatever hap-
information on UBS Wealth Manage-
Invest in Africa pens, for a full month, millions of fans around the world will put
ment Research including research po-
licies and statistics regarding past rec- everything else on hold as they watch a new volume of sports leg-
– Overview 14
ommendations, please contact either ends written on the pitch.
– Socially responsible investing (SRI) 17 your Client Advisor or the mailbox
<UBS-research@ubs.com> giving your
– Philanthropy 20 country of residence.
Although we are all serious analysts, economists and strategists, most of my colleagues at
UBS Wealth Management Research and I are nevertheless addicted to football. The chatter
Please see important disclaimer
Focus on World Cup 2010 26 and disclosures in the “Important around the coffee machine is slowly but surely drifting away from the fumes of Eyjafjalla-
Disclosures” section. jökull, the new SEC investigations, and Chinese monetary tightening. Instead, the talk is
Football pundit interview 32 UBS Financial Services Inc. analysts becoming increasingly dominated by debates about whether the Spanish team is stronger
did not provide any content relating than the Argentinean, whether the English team can reach the final or whether the most
to equity or debt securities, or issuers obvious contender, Brazil, will win its sixth title.
Economics of Football 36
of equity or debt securities, contained
in this report.
Appendix 40 One of the aims of this UBS investor’s guide is to share our enthusiasm for the event. Once
This report has been prepared by UBS again, we have applied our usually quite dull analytical toolbox to deciphering the beauti-
AG and UBS Financial Services Inc. UBS ful game's most coveted championship. However, this latest investor's guide is based on
Financial Services Inc. is a subsidiary of
more than just football frenzy.
·
UBS AG. “UBS investor’s guide”, a UBS
Wealth Management Research publi-
cation for private clients, is published As this is the first World Cup to be held in Africa, we thought it would be useful to take a
monthly, on Fridays, in German, French, closer look at a continent that is too often forgotten when it comes to searching for invest-
·
Italian and English. The publication is
ment opportunities or, even more simply, when assessing the state of the world economy.
available by e-mail and in some in-
stances as a printed edition. If you wish Bear in mind that Africa accounts for 15% of the global population and, owing to its strong
to subscribe, please contact your UBS demographic trends, is likely to accounts for 20% in just a couple of years.
·
client advisor. Details regarding the in-
formation contained in this publication,
restrictions on distribution and other We hope you enjoy the entertainment section of this issue, but we also urge you to study
legal considerations are given on pages the information and analysis we present on Africa.
·
40 and 41. In all cases we advise any-
one interested in selling or buying a
product or financial market instrument
mentioned in this publication to consult
·
their client advisor first. Price informa-
tion for more than 600,000 financial
market instruments is available at www. andreas.hoefert@ubs.com
Football a male sport? This has not been the
case for a long time now. And women are
·
ubs.com/quotes. Past performance
Chief Economist
is no indication of future perform-
also playing an increasingly important role
in African politics and business. The women
ance. The market prices provided
(and men) in the UBS investor's guide edito- are closing prices on the respective
rial team are looking forward to the World principle exchange. This applies to
Cup and hope you enjoy this special edition. all performance charts and tables in
Source: www.gettyimages.com this publication.
UBS investor’s guide special edition April 2010 3

Africa · Focus Focus · Africa
Surprising Africa: Know the score

and 2008, which compares with 13.5% for
Aside from some well-worn clichés, exports to the United States. At the same
relatively little is known in the rest of time, China is engaging increasingly in for-
the world about the continent that eign direct investments in Africa, but com-
pared with developed countries, the involve-
will host the World Cup in 2010. In ment is still at a relatively low level. While a
this article, we highlight 10 surprising large part of China’s imports from Africa and
things you may not know about foreign direct investments in the continent
Africa. are attributable to the Asian giant’s large
commodity hunger, this relationship is not
limited to commodities. China is also invest- Source: www.masterfile.com
ing in African infrastructure and uses its own
China is South Africa’s most
1 important trading partner
experience to help develop and run special densely populated, telecommunication phones for every 100 people in a typical
economic zones designed to attract invest- infrastructure is in big demand. Whereas developing country boosts GDP per person
ment. With its energy hunger, China will developed nations often use the internet, by 0.8 percentage points. This makes the
China has overtaken such heavyweights as continue to support African commodity retail and service networks, or marketplaces, mobile phone one of the most important
the US, Japan, Germany and the UK to exporters and, in the longer term, will likely mobile phone systems in Africa are now drivers of living standards in Africa.
become the country’s largest trading partner help the continent grow richer. making many such services available for the
(in terms of total trade). China’s leading role first time: weather forecasts, health advice, Africa: more diverse than you
comes just 10 years after establishing diplo- Highest mobile phone and even mobile money – a virtual bank 3 think
matic and trade relations with South Africa. 2 subscription growth account that enables payments for many
In 2009, China provided 16% of South goods and services, including electricity and The African Union is made up of 53 diverse
Africa’s imports and bought 11% of the Some 40% of Africans already own a mobile school bills, directly from a handset. These countries whose inhabitants speak more than
country’s exports. Taking a look at Africa as phone – no other continent has higher sub- services are often cheaper, faster and more 2,000 languages. Per-capita GDP in 2009, for
a whole, Africa’s exports to China increased scriber growth. In a continent three times as reliable than the erstwhile alternatives. example, was 51 times higher in Equatorial
by a yearly average of 31% between 2000 large as the United States, but only a third as According to a recent study, adding 10 extra Guinea (USD 8,760) than in the Democratic
Figure 1 Figure 2
China has become South Africa’s largest trading partner GDP per capita in selected African countries
15 10000
Guinea
Eq.
8000
South Africa
12
Exports
GDP per capita in USD,
Imports 6000 2009 estimates
9
Tunisia
4000
Dem. Rep. of Congo
6
Switzerland
Netherlands
Egypt
Mozambique
2000
The African Union is made up of 53 diverse
India
Nigeria
countries whose inhabitants speak more than
Zimbabwe
Kenya
Ethiopia
3
Germany
Uganda
Ghana
1000
South Africa’s total trade 2,000 languages. Also GDP per capita varies
China
Japan
USA
UK
0
(exports plus imports in bn USD). 0
considerably.
Source: UBS WMR Source: IMF, UBS WMR
4 UBS investor’s guide special edition April 2010 UBS investor’s guide special edition April 2010 5
Republic of Congo (USD 170), and the aver- currency, coupled with lower incomes owing might be a first step toward a less commod- renewed increase in accident rates in 2009,
age GDP growth over the last three years in to the recent global economic and financial ity-dependent region. To make the USD 80 and there is still a lot of catching up to do:
Angola (11.3%) was 17 percentage points crisis severely squeezed African households billion project feasible, the Congo has part- The accident rates in Europe were still 22
higher than in Zimbabwe (–5.7%). The num- budgets. The UN estimates that in 2009 the nered with Angola, Botswana, Namibia, and times lower than in Africa last year. At the
ber of coups and plots in Africa has been number of hungry people in the world rose South Africa to share the resulting costs as same time, however, African air traffic is also
trending lower in recent years, but the conti- to more than one billion, of which around well as the generated power. However, the growing denser – between 2001 and 2008,
nent still leads the global rankings if we look the number of passengers on African-owned
at the last 30 years. However, in the past airlines increased by more than 46%. New
decade, civil conflicts have occurred in only a airports are being built and new flight routes
few of the continent’s many countries, mainly established in many parts of Africa, but,
located in the Saharan belt and in a couple of admittedly, the majority of African flights still
other sub-Saharan countries. Africa is com- take place in the relatively well-developed
monly perceived as a mere commodity pro- northern countries, as well as South Africa,
ducer. Although it is true that commodities and is associated mainly with tourism. The
(including diamonds, gold, oil and various growing importance of African tourism is
agricultural products), are an important driver also reflected by the fact that last year 17%
of exports, consumers in many advanced of all passengers leaving the European Union
African countries – and the companies that by plane were flying to a destination on the
serve them – are on the rise. Murchison Falls, Uganda / Source: www.masterfile.com African continent. Looking ahead, several
African aviation authorities are seeking
one-third are Africans. This is an increase of
high financing costs, widespread corruption, negotiations with Europe on a common air-
Large agricultural sector, not approximately 10% compared with the pre-
and lack of agreement between govern- space.
4 enough food vious year, and is sadly the highest number
ments and other participants on key issues
in the last 40 years.
have slowed the project’s progress. The fact
Women ruling Rwanda’s
The agricultural sector on average makes up
World’s largest hydropower
that more and more countries, banks and 7 parliament
25% of the African economies’ overall eco-
nomic production. This compares, for exam-
5 potential in Congo other private companies are starting to par-
ticipate in global carbon offset programs Rwanda holds the world record for the high-
ple, with 1% in Switzerland. In spite of the Africa’s Congo River could provide the may, however, fuel renewed hope for the est quota of female members in parliament.
majority of the Sub-Saharan labor force energy for the world’s largest hydropower project’s success. Since the last elections in 2008, women out-
being employed in the agricultural sector, plant. According to the World Bank, the con- number their male parliamentary counter-
most African countries cannot provide tinent’s largest river in terms of watershed parts, making up over 56% of parliament.
African airlines growing larger,
enough food themselves. Because most holds the potential to produce 100 6 and becoming safer The trend only really took off when a change
African countries import significantly more gigawatts of hydropower – more than the in the constitution reserved a 30% minimum
food than they export, fluctuations in food combined capacity of all of France’s nuclear African airlines’ accident rates came down by quota or at least 24 seats for female parlia-
prices on the world market strongly affect power stations. The mineral-rich Democratic 77% in 2005–2008, while global accident ment members. After changing the constitu-
prices paid by Africans. Rising prices of agri- Republic of Congo is Africa’s fourth most rates actually increased 5%. According to tion in 2003, the proportion of women in
cultural goods in 2007 and 2008 led to sig- populous country, but also one of its poor- the International Air Transport Association Rwanda’s government rose from zero to 30
nificant increases in local food prices, with est. Currently, the state power utility delivers (IATA), African airlines were three times safer percent. Rwanda is joined by Angola
average inflation in Sub-Saharan countries electricity to just 7% of the country’s 68 mil- than those of Russia & the Commonwealth (37.3%), Burundi (30.5%), Mozambique
rising from 7% in 2007 to 13% in 2008. As lion people. With access to electricity being of Independent States (CIS) in 2008, and 1.2 (34.8%), South Africa (33%), Tanzania
a typical African household spends half of its one of the ingredients for sustained eco- times safer than Latin American airlines. (30.4%) and Uganda (30.7%) as the seven
income on food, higher food prices in local nomic growth, the Congo River project Nonetheless, African airlines saw a sharp African countries with the highest quota of
Figure 3
decades will be larger than the population of world’s crude oil supply and consumes less
Women in the world’s parliaments children and aged dependants that they sup- than 4% of this, thus leaving the continent
60
60
port, meaning that income per capita can with a large surplus. On the back of emerg-
50 rise faster. This constellation – the reverse of ing Asia’s ever-growing hunger for natural
40
40
the rapidly aging populations of Europe, the resources, pressure on expanding production
30
20
US and Japan – is called the demographic is omnipresent, and we can expect Africa to
20
10
dividend, and is also believed to have played remain a growing source of commodity sup-
0 0
an important role in the economic miracles ply in the years to come. However, taking
Rwanda
Sweden
Cuba
Norway
Angola
Spain
New Zealand
Switzerland
Austria
Pakistan
Canada
China
Italy
United States
Zimbabwe
Republic of Korea
Romania
India
Brazil
Ghana
Bangladesh
Equatorial Guinea
Kuwait
Saudi Arabia
of the so-called Asian Tiger nations over the into account that 14.7% of the world’s pop-
Percentage of female parliament members in last decades. However, it is no done deal that ulation lives on the continent, Africa does
selected countries: Rwanda holds the world Africa will be able to benefit from its shifting not enjoy excessive energy reserves in the
record.
Source: Women in parliament, Inter-parliamentary Union, UBS WMR demography: In particular, in Sub-Saharan long run. As African economies develop and
Africa HIV/AIDS threatens to decimate the grow, they too will have a bigger appetite for
female parliamentary members. African gov- plans to upgrade railways should reduce working-age population, while more gener- energy. Extrapolating historical numbers sug-
ernments frequently see women as critical transport costs. Several countries in Western ally poor education, corruption, as well as a gests that Africa might become a net
partners to alleviate rural poverty and to and Central Africa also already share a com- lack of well-regulated markets put at risk the importer of oil by 2040. Thus, supplying the
diversify the economy, moving from depend- mon currency, the CFA franc, which con- positive effects of Africa’s demographic world with non-renewable resources today
ence on agriculture and natural resources to tributes to the harmonization of monetary trends. Nonetheless, demography probably comes at the cost of scarcity for future
a more knowledge-based approach. and fiscal policies in the region. While many remains Africa’s biggest opportunity of the African generations.
Nonetheless, this is a slow and ongoing of the initiatives have not yet shown the next 50 years. kilian.reber@ubs.com
process that will require time to translate into desired success, they are forums for veronica.weisser@ubs.com
real effects for the economy. exchange and co-ordination between michael.bolliger@ubs.com
Africa as a potential net oil
African states, which may form the basis for 10 importer in 2040
Analysts, UBS AG
joint progress towards economic develop-
Little trade within Africa, but
8 growing integration
ment and the strengthening of political insti- Africa holds an estimated 13% of the world’s
tutions in the future. proven crude oil reserves and – owing to
Trade between African countries makes up new discoveries – likely even more. At pres-
only 10% of their total trade. The remaining ent, the continent produces 12% of the
Growing richer through smaller
90% consists of trade with the rest of the 9 families
world. One of the reasons for such low Figure 4
regional trade is that African countries are One African in two is a child. This fountain
predominantly exporters of commodities, of youth is largely the result of declining mor- Massive excess production, but for how long?
such as oil, gas, and precious metals, while tality rates owing to the increased use of vac- 12000
Source: BP, UBS WMR, as of April 2010
few countries on the continent have the cines and antibiotics, as well as better access 10000
Consumption
manufacturing expertise needed to process to safe water. Since the 1980s, however, Production
8000
these commodities into higher-value prod- birth rates in Africa have been falling by
ucts. Yet, there are also structural and polit- more than mortality rates, resulting in fewer 6000
ical reasons, such as weak infrastructure and children per family. For instance, in
4000
restrictive tariffs that hinder trade. To miti- Botswana, women on average had 6.4 chil-
gate these barriers, customs unions and free dren in 1981, which fell to 3.2 in 2006. This 2000
Daily oil production and consumption in
trade areas are being created. In Western means that the age-groups going into the 0 Africa, in thousand barrels.
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005
Africa, for example, the implementation of workforce at present and over the next
South Africa · Economy Economy · South Africa
South Africa – the host’s economy Africa’s economic powerhouse rate is close to 25%, the true situation is
In economic terms, South Africa remains more serious. Of South Africans over 15
South Africa has maintained its status nomic policies and a solid regulatory frame- uncontested on the continent despite los- years of age, 44% are classified as econom-
work: The government has maintained tight ing ground versus its global emerging ically inactive and are therefore not included
as Africa’s uncontested economic
control over spending and has expanded the market peers. South Africa provides 40% in the unemployment statistics. This is
powerhouse, generating nearly a tax base, resulting in healthy, low levels of of Africa’s industrial output, 45% of its unusually high and means that finally only a
quarter of Africa’s total GDP. However, government debt. Central bank policy has mineral production and generates over very small group of workers generates the
the country is losing ground relative remained focused on containing inflation 50% of the continent’s electricity. The wealth on which the society as a whole
despite complaints that interest rates were large role of South Africa’s real economy depends. To improve the living standards of
to its global emerging market peers.
too high and the South African rand too is reflected in its financial markets: Taken the population at large, the country needs to
We take a closer look at the rainbow strong. Moreover, South Africa has been able together, MSCI’s market capitalization in tap into the vast number of South Africans
nation’s economy reveals serious to rely on its world-class legal system and Africa shows that South African stocks who currently do not participate in the econ-
structural challenges and the risk that regulatory environment, and it is recognized account for over 80%. In fact, the Johan- omy and whose human capital largely lies
internationally for its high standards in cor- nesburg Stock Exchange (JSE) is among idle.
the significant achievements of the
porate accounting and investor protection. the top 20 exchanges in the world when
past could be eroded. measured on market value and turnover, Potential for investment in education
Losing ground while South Africa’s bond markets are by In the light of the large number of unem-
South Africa’s hosting of the Football World Although South Africa obviously has far the most sophisticated on the conti- ployed, it seems contradictory that South
Cup can be interpreted as recognition of the achieved much and remains predominant in nent. With just under 50 million inhabi- African firms have tremendous difficulties in
country’s economic and political progress. Africa (see Text Box), a closer look at the tants – approximately 6% of Africa’s total filling vacant positions. This is explained by
However, as the current debacle surrounding economy reveals that it has continually lost population – the South African economy the skills shortage in the economy that has
Greece – which hosted the Olympic Games ground relative to its emerging market peers. generates nearly a quarter of Africa’s total been aggravated by weak educational
in 2004 – shows, the staging of even a huge This is reflected in South Africa’s relative GDP. results. A high drop-out rate means that only
international sporting event is by no means decline in terms of GDP per capita. Although 27% of students successfully complete 12
a guarantee of future economic success. South Africa’s GDP per capita in 1992 was
South Africa’s progress over the 15 years above that of all countries other than Turkey
since the end of apartheid has been based in our peer group sample, it has now fallen countries selected based on similar levels of Table 1: Skills and education
largely on political stability, prudent eco- well behind these countries (see Chart 1, economic development in the early 1990s). Education results still weak
The picture of relative deterioration is con-
South Poland Russia Turkey Brazil Ma-
Chart 1
firmed when purchasing power is accounted Africa laysia
for. With an average growth rate of 3.4%
Other emerging markets are leading the pack Pupil to teacher ratio
over the last 15 years, South Africa has also
in primary education 31 11 17 n.a. 24 16
15000
GDP per capita in USD, nominal
underperformed average world economic
% population
growth at 3.7%. attaining secondary
12000
South Africa Brazil education 27 51 89 28 31 35
9000
Poland
Russia
Malaysia
Turkey
What is holding South Africa back? Gross enrollment ratio
While South Africa has become richer on a As South Africa is clearly not reaching its in tertiary education 15 67 75 36 30 30
per capita basis, a peer group comparison of
6000
countries with similar levels of per capita potential, the question is: Which factors are % university
wealth in the early 1990s shows that it has acting as a brake and are thwarting eco- students studying
3000 not kept pace with the rapid growth in other nomic development? science & engineering 20 22 n.a. 21 16 42
emerging markets (GDP per capita in USD, Adult literacy rate 88 n.a. 100 89 90 92
0
Source: IMF
nominal). The labor market is a conspicuous candi-
1992 1994 1996 1998 2000 2002 2004 2006 2008
date. Although the official unemployment Source: UNESCO, UBS WMR
South Africa · Economy Economy · South Africa
South Africa’s economy is about more than just gold limit economic growth. It also means that – 0.6% and 1.2% respectively in 2006/7), will
unlike most emerging markets – consumer let the country’s debt level rise quickly, and
For over a century, South Africa was the wines are world-renowned, but agriculture
spending is likely to remain sluggish and will today’s historically low interest rates are
world’s largest producer of gold until, in and food exports are actually very limited,
not be a driving factor in the ongoing eco- potentially putting at risk the country’s hard-
2007, it was overtaken by China. Particu- at 4% of total exports.
nomic recovery. Lastly, with nearly 20% of fought reputation for keeping inflation in
larly during the 1970s and 1980s, gold In spite of the economy becoming more
the population over 15 years of age esti- check. We believe that policy makers cannot
exerted a significant influence on the econ- broad-based, exports remain fairly concen-
mated to be HIV positive, the strain on rest on their laurels. Not only should past suc-
omy, which helped result in a very strong trated with over 50% derived from an array
households to provide care to the ill and to cesses not be allowed to slip, but a sense of
currency. The South African rand hit a peak of mining products: South Africa supplies
AIDS-orphans is all the more severe as HIV urgency is needed to ensure that South
of about 1.50 USD per rand in June 1973, 80% of the world’s platinum and is the
affects mostly those family members of Africa’s hard-won successes are not eroded.
more than 10 times stronger than today’s world’s largest producer of chrome, man-
prime working age. veronica.weisser@ubs.com
level. Gold’s importance has diminished as ganese and vanadium. Though coal and
Economist, UBS AG
the country’s economy has diversified, and diamonds may seem very dissimilar, both
South Africa must act to prevent past
today’s principal sectors include the auto- stem from carbon deposits, which are com-
successes from being eroded
motive industry, financial services, tourism, mon in South Africa, and both remain vital
South Africa, therefore, faces tremendous
manufacturing and retail. South African export goods for the country.
challenges. Not only must prudent economic
policies be continued in order to provide the
economy with solid foundations for the long
years of basic education, fewer than in most Understandably, the apartheid legacy has run, but the most important factors holding
peer group countries (see Table 1 on page left South Africa with a strong desire to pro- the country back deserve more focused
11). Of these students, only one-fifth reach vide “fair” wages. However, high wage lev- attention. At present, however, some institu-
the standard required to be admitted to uni- els do not reflect the country’s level of edu- tions are not looking bold enough. The cur-
versity, resulting in an extremely low flow of cation and skills, and mean that South Africa rent fiscal deficits (–7.9% in 2009 and esti-
graduates. Similarly, in technical skills such as is steadily pricing itself out of global produc- mated –7.1% in 2010 versus surpluses of
mechanics, bookkeeping and agriculture, tion markets.
South Africa scores poorly with enrollment
rates of only about 5%. Household finances should be
Thus, while a very large part of the pop- consolidated
ulation is out of work, many do not have the In spite of high unemployment, South
skills employers require. Could they not be African households have relatively high lev-
employed in lower-skilled jobs? These exist els of consumption, which is funded in part
only to a very small extent in South Africa as by debt. This means that households, on
the relatively high wage levels enforced by average, have not been able to save. As an
trade unions (also for unskilled workers), essential ingredient to economic progress,
make South African companies employing savings, however, are needed to fund invest-
lesser-skilled workers uncompetitive relative ment, e.g., to ease South Africa’s infrastruc-
to other emerging markets. Adjusted for ture bottlenecks and to build businesses.
purchasing power, average wages in South Therefore, South Africa remains highly
Africa are estimated to be more than twice dependent on foreign capital for investment,
as high as in Brazil and Turkey, 1.6 times and this is reflected in large current account
higher than in Malaysia and 1.3 times higher deficits, which make the country vulnerable
than in Poland. to sudden capital withdrawals and sharply Source: www.dreamstime.com
Invest in Africa · Overview Overview · Invest in Africa
A lot to catch up on Leading, promising, and lagging Africa

We evaluate five important factors that all affect become more advanced in a number of years,
the long-term growth potential of an economy: assuming that their fundamentals improve fur-
Africa is host to 14.7% of the world’s 2011. Although these are strong numbers macroeconomic factors such as growth and infla- ther. In this block are: Gabon, Ghana, Kenya,
overall, as a continent of 53 diverse inde- tion, the structural development of an economy, Senegal, Tanzania, Uganda, and Zambia. These
population, growing at a rate three size of the population and life expectancy, as well include some of the more populous countries on
pendent countries (according to the African
times faster than that of Europe. Yet Union), growth potential, investment oppor- as quality of governance and education. We do the continent and quite a few of them enjoy rel-
its economy is still just roughly the tunities and risk factors tend to greatly differ
this analysis for all 20 African countries whose GDP atively good governance, but education and life
size exceeds a minimum of USD 10 billion and are expectancy are still an issue in many cases.
size of the UK economy. Given these within Africa. It is therefore important to dis- therefore – potentially – large enough to provide Lastly, those countries that seem to be, over-
striking imbalances, we believe some tinguish between economies that are better investment opportunities (see color-coded coun- all, less well positioned and will likely need more
and those that are less well positioned for tries in Figure 1). Countries that we currently time to develop are grouped as ”lagging Africa,”
parts of Africa still harbor large economic growth and development in the regard as highly unstable were excluded. and are made up of: Angola, Congo Brazzaville,
growth potential in the years ahead. foreseeable future. We call those African countries that, accord- Congo Kinshasa, Côte d’Ivoire, Equatorial
ing to our indicators, are overall best positioned Guinea, Ethiopia, Nigeria, and Sudan. Most of
Overall, Africa has been less affected by the Investment opportunities limited but for further growth and development “leading these countries are rather undeveloped, with a
Africa.” They are: Botswana, Egypt, Morocco, comparably low quality of governance and edu-
global economic crisis than originally growing
South Africa, and Tunisia. These countries tend cation. Their population size differs, but they
expected, with GDP growing 2% in 2009 as Even though African markets have become to be the most advanced and, for the same rea- share a relatively low life expectancy. This group
estimated by the IMF. Recently, the IMF has more accessible to foreign investors over the son, also the most investable countries within of countries tends to be the least investable cur-
upgraded its GDP growth forecasts for the past few years, large roadblocks to foreign the African continent. They have achieved a rel- rently. Even though, for example, Angola has
continent to 4.3% for 2010 and 5.3% for investment still exist in many cases, in partic- atively high quality of governance and education seen strong economic growth recently owing to
ular the small size of the markets and their as well as a relatively high life expectancy, but its oil reserves, this has not yet translated into
limited liquidity. We want to highlight the they are not the most populous countries on the more stable institutions. A few years down the
investment vehicles open to most investors, continent. road, however, some of the countries in this
Figure 1
Next is the group of “promising Africa,” which group may exhibit better fundamentals, sup-
namely traditional equity and bonds, but we
Leading, promising and lagging Africa refers to African countries that are in a position to ported by their commodity exports.
do note that private equity is yet a further
Africa, ranked by its relative economic potential option for some investors.
ket capitalization is well diversified across nies that operate in these markets. For
Equities mainly in leading Africa sectors, but in the less developed “promis- instance, multinational companies in the
Investing via equities is a straightforward ing Africa” block, it is heavily skewed consumer sector are likely to benefit from a
way to gain exposure to African growth. towards Financials (63%) and Consumer rapidly growing consumer base as well as
MSCI equity indices, which only include liq- Staples (26%). While the Swiss Market Index overall improving living standards in several
uid stocks that fulfill minimum investability is almost three times as large as the market African countries. Also, an increasing num-
requirements, are a good proxy for easily capitalization of the African stocks tracked ber of South African and, more recently, Chi-
investable African stocks. Taken together, by MSCI, Africa’s equity universe is certainly nese companies in the energy and the indus-
these indices include USD 270 billion worth growing as more countries open up and trials sector are set to experience growth
Leading Africa of equity market capitalization in seven develop their own stock markets. Promising from their investments in the continent.
Promising Africa
African countries, as Figure 2 shows. Owing African countries such as Botswana and Other sectors in which South African multi-
Lagging Africa
to the limited investability and low liquidity Ghana are now under consideration for nationals are likely to benefit from African
in many markets, however, most of the inclusion by MSCI. growth are companies in the telecom, bank-
tracked stocks are still in the more developed Another way to gain equity exposure to ing, and food retail sectors. Such indirect
African markets, such as South Africa (84%), growth in the less developed African coun- equity investments in Africa through multi-
Source: IMF, World Bank, UBS WM and Egypt (7%). In these regions, the mar- tries is through large multinational compa- national companies, especially those domi-
Invest in Africa · Overview Socially responsible investing (SRI) · Invest in Africa
ciled in developed markets, bring with them but they have little overall weight in Africa Sustainability – a delicate ﬂower in Africa
lower volatility than direct equity invest- (less than 5%).
ments in the continent, but they still can add
diversification to a portfolio. Risks and diversification Africa does not have the reputation of by large companies to improve environmen-
Overall, investments in African countries, being a leader in sustainability issues. tal and labor conditions in cocoa growing
Bonds allow further diversification especially in “promising Africa” and “lag- and create skilled jobs to increase local value-
Another way to gain exposure to African ging Africa” tend to be highly volatile.
On closer examination, though, posi- added. Equally, workplace rules in line with
markets – particularly also to some of the less Economic policies may shift quickly, leading tive examples can be found in various the International Labor Organization (ILO)
developed “promising Africa” block – are to high uncertainty and asset price volatility. areas. are being observed all along the supply chain
sovereign bonds. The easiest bond invest- Also, any decrease in global risk appetite and preventive HIV/AIDS policies put in
ments for foreign investors are international tends to lead to a sell-off in the less devel- Sustainability is often mentioned in connec- place, along with teaching programs and
sovereign bonds denominated in major cur- oped African countries. We therefore tion with ecological considerations, such as awareness projects. So multinationals that
rencies. The J.P. Morgan EMBI Global, a sov- advise interested investors to allocate only a the percentage of electricity output act in an exemplary manner can make an
ereign international bond index that only small part of their portfolio to African mar- accounted for by renewable energies or important contribution to minimum ecolog-
includes relatively liquid bonds that meet kets. Also, we do not recommend exposure changes in the total area of forests. However, ical and environmental standards in Africa by
minimum investability requirements, is a to single African markets, and we advise there is much more to it than that. The social making efforts to produce in a way that is as
good proxy for easily accessible African debt. investors to take a diversified approach, both aspects of sustainability affect spending on environmentally and socially acceptable as
Taken together, the international bonds for across countries and asset classes. education and health, where the state plays possible and – crucially – holding themselves
all African countries make up USD 9.3 billion Over the coming years, more of the a leading role. In Africa, sustainability is also to account for this. We should not be overly
and EUR 2.1 billion of outstanding debt currently less accessible African markets will used to mean a stable institutional frame- optimistic, but it has become increasingly dif-
spread over five countries (see Figure 2). One likely become open to foreign investors. At work, which favors private enterprise and
way to gain exposure is to buy these bonds the same time, the already accessible African protects property rights and thus contributes
directly, but we advise a broad diversification markets will tend to become less risky. We to sustainable economic success.
when doing so. Currently, none of the major advise investors to keep an eye on African In global terms, Africa is a lightweight as
funds exclusively track African sovereign markets as well as our updates on them, as both an end-market and a financial center.
bonds. African bonds are included in funds they come to the forefront of investing. Within emerging markets, multinationals
that track the EMBI Global benchmark index, kilian.reber@ubs.com prefer to commit to Asia, Latin America and
Analyst, UBS AG Eastern Europe. There are some sectors,
though, where Africa is a key producer:
Figure 2 crude oil, diamonds, metals and soft com-
modities like cocoa and coffee. Sadly, exam-
African equities and bonds – what’s out there
ples are frequently uncovered showing that
0 1 2 3 4 5 6
these resources are not being used in a sus-
Tunisia tainable way. Media attention is increasingly
MSCI equity market cap. (bn USD, bottom scale)
Nigeria
JMP EMBI Global bond market cap. (bn USD, top scale)
focused on internationally active companies,
Mauritius
Kenya
raising the pressure for responsible procure-
South Africa ment. The reputational risks from cases of
Morocco exploitative child labor or serious pollution
Ghana
are considerable.
Gabon
The good news is that there are some
Egypt Equity and bond market capitalizations in
Source: MSCI, J.P. Morgan, UBS WMR
USD bn. positives along with all the negative exam-
0 50 100 150 200 ples. For instance, there have been initiatives Coffee / Source: www.masterfile.com
Invest in Africa · Socially responsible investing (SRI) Socially responsible investing (SRI) · Invest in Africa
ficult in recent years for globally active com- times. This improvement is related to caps. They all engage in best practices in insurance to people who previously had no
panies to ignore sustainability and trans- changes to the law and pressure on firms to terms of environmental and social perform- access to them because they were poor.
parency. operate in accordance with international ance. The performance of the JSE SRI index Microfinance is regarded as an important
standards. South Africa is clearly ahead of has been almost identical to that of the tra- tool in fighting poverty. It has not yet taken
Few opportunities for sustainable the field in the continent when it comes to ditional index. In March 2010, Standard & off in Africa in the same way it has in Asia
investment disclosing non-financial indicators such as Poor’s launched a pioneering Egyptian sus- and Latin America. Sub-Saharan Africa has
At present, there are scarcely any invest- those relating to the environment, society tainability index (the EGX ESG index). Sus- the highest percentage of the population
ment instruments for Africa that explicitly and corporate governance, and second only tainability indices allow investors to compare making no use of financial services: 80%. By
include ecological and social criteria. Sus- to Brazil among global emerging markets. companies. They are also a good guide to way of comparison, the figure in Asia is
tainability products investing in emerging This may have to do with the fact that best practice (benchmarking), and encour- around 60%. Poor infrastructure, large dis-
markets only pay marginal attention to South Africa has important firms in the min- age companies to raise their environmental tances, low population density, and a less
Africa, and when they do they focus on ing industry, where environmental impact is and social standards. stable political and social environment have
South Africa. This has partly to do with the high. Companies are also under a duty to so far hindered the emergence of a well-run
difficulty of finding companies with accept- disclose non-financial criteria. Plenty of potential for microfinance commercial banking system, and hence also
able standards and disclosure practices. The JSE SRI sustainability index was Africa is also a laggard when it comes to microfinance.
Standards are lower than in industrialized launched by the Johannesburg Stock microfinance. This involves providing a broad michael.bolliger@ubs.com
countries, although improvements have Exchange in 2004. It mainly comprises large- range of financial services such as loans, sav- gianreto.gamboni@ubs.com
been perceptible in some regions in recent cap companies, but there are also some mid- ings accounts, payment transactions and Analysts, UBS AG
Country Population GDP per GDP growth GDP growth CPI inflation CPI inflation
Can sport make a difference? players and crime on a country level, sev- 2009 capita 2009 last 5 years 2010–20141 2005–2009 2010–20141
mn people in USD (average) (average) (average) (average)
In 2005, the International Year of Sport eral studies confirm our presumption on a
Angola 17.3 4027 14.6 7.2 15.0 10.5
and Physical Education, the UN stressed regional and community level.
Botswana 1.8 5995 0.8 7.5 9.6 5.6
the important role of sport “to foster Cameroon 19.9 1095 2.7 4.1 3.3 2.0
peace and development, and to con- Soccer on the forefront Dem. Rep. of Congo 64.8 171 5.7 6.9 21.7 11.3
tribute to an atmosphere of tolerance and According to data collected by FIFA in Egypt 76.7 2450 6.1 5.4 10.4 7.5
Equatorial Guinea 1.3 8759 7.7 0.2 4.6 4.6
understanding”. Two years later, the 2006, the number of both youth and ama-
Ethiopia 81.2 418 10.9 7.5 19.3 7.2
African Union Commission launched the teur football players as a percentage of the Gabon 1.5 7414 2.2 3.2 2.5 3.2
International Year of African Football, reit- total population in Africa is relatively low, Ghana 23.1 639 6.0 9.0 14.2 6.6
erating this belief and emphasizing the although the data might be flawed owing Kenya 35.9 842 4.7 5.7 11.9 5.6
prominent role football plays in African to a lack of registrations, measurement Mauritius 1.3 7146 3.9 3.9 7.6 4.8
Namibia 2.1 4341 3.4 2.5 6.1 5.2
society. Although it might be unrealistic to errors, and other factors. However, com- Nigeria 151.9 1089 5.5 5.7 11.0 8.6
claim that sport alone can reduce youth pared with the survey undertaken in 2000, Rwanda 9.8 512 7.8 5.8 10.8 5.3
crime, drug abuse, civil strife, and dis- the number of soccer players in Africa has Senegal 12.8 984 3.4 4.5 2.9 2.1
eases, we do think sport can give people increased by 13%, whereas the number of South Africa 49.2 5635 3.3 3.8 6.8 5.0
Sudan 39.1 1388 7.7 4.8 9.8 6.8
joy, a positive identity, and feelings of players in Europe and the Americas Tanzania 40.5 547 6.7 7.0 7.9 5.0
empowerment while fostering teamwork remained more or less stable. The FIFA The Gambia 1.7 434 5.5 4.8 4.7 5.2
and promoting responsible behavior. World Cup in South Africa will likely foster Tunisia 10.4 3794 4.7 5.3 3.6 3.2
Although we could not find a statistical this trend, and thereby help further social Uganda 33.2 472 8.3 6.7 8.6 6.7
Zimbabwe 11.7 303 -5.5 6.0 18.8 7.6
link between the percentage of football development in Africa. 1
Forecasts Source: International Monetary Fund, World Economic Outlook Database, 2009
Invest in Africa · Philanthropy Philanthropy· Invest in Africa
“South Africa is a role model” mate change long before there was a global Are microloans a cure-all?
climate summit. Microloans are a particularly good way for
women to generate income. The best thing
Are there drawbacks too? about them is the ownership. The women
The UBS Optimus Foundation cele- involved when the project came to an end. There are almost no requirements for trans- who get the money sign a contract, and they
brates its tenth anniversary in 2010. When we look at the institution, we were parency. Hence many charities are not trans- are responsible as entrepreneurs. Microloans
We spoke to CEO Christoph Schmoker not sufficiently successful in making known parent. Charities often find it hard to co- can help to solve part of the problem, but
about philanthropy and commitments the benefits of philanthropy. By that I don’t operate. Our Early Childhood Development they are not a cure-all. You still have AIDS.
mean the financial benefits, since logic dic- initiative in South Africa is a good example. And there are children who still don’t go to
in Africa. tates that it is negative for the donor, but the We co-operate with two other charities in school or who don’t have mosquito nets.
emotion and satisfaction that come from a this. That’s rather the exception, though. You get back to the basic discussion about
commitment. Charities often see each other as competitors international development...
Mr. Schmoker, the UBS Optimus Foundation rather than partners to co-operate with.
is celebrating its tenth anniversary in 2010. What sort of people become philanthro- Which is?
What are you particularly proud of? pists? Aren’t charities taking on jobs that should Do you have to be healthy to be able to go
That we selected the issue of child protec- Often they are wealthy people who want to really be done by the state? to school and earn money? Or do you have
tion. In 2002, we decided to invest in the do something good and set something up That’s a fair question, but it doesn’t take to have money so you can stay healthy and
issue of protection against violence and that will last. Once they have achieved busi- account of individuals. If a father in Ethiopia go to school? Or do you have to be educated
exploitation, even though this is a very sen- ness success, inner values become increas- sees that his daughter can’t go to school so you can stay healthy and earn money?
sitive, taboo issue. Today, we are one of the ingly important for such people. Our donors because there is no schoolhouse, waiting for Each project takes a different approach.
three most important and knowledgeable recognize that now is time to do something. the state to build one doesn’t help him. But Microloans tackle income. But there’s also a
organizations in the field in Europe, not just Many keen donors find it hard to identify a people planning projects have to consider fourth area, climate and the environment.
as a source of funds but also as an agenda suitable project, though. A great deal also when the state should get involved. Ideally, You might have done things perfectly, but
setter. depends on their personal interests. We have a private charity launches an initiative that everything you have built up could be wiped
important issues, but we don’t cover every- gradually has a ripple effect. For example, out in a rainstorm or an earthquake.
Have there also been disappointments? thing; for instance, we don’t work on envi- the neighboring villages can see that a
In terms of content, our commitment to an ronmental or animal issues. The Optimus school is being built. Maybe local govern- Let’s talk about Africa: is the World Cup
educational project in Afghanistan was not Foundation has an open architecture, ment will be looking, so the state moves in good for Africa?
a success, and we did not manage to find a though. We are happy to help people select and takes over the initiative. Perhaps half of It’s good for the continent of Africa that the
follow-on solution for all the children a suitable environmental project, even all projects follow that pattern. spotlight is now on South Africa, so they can
though we are not involved ourselves. show “we can do it too” and generate con-
What does a project need to succeed? fidence. But it may well be that black South
Christoph Schmocker has Projects are successful when they have a lot African women see things quite differently…
been the CEO of the UBS Opti- What is the role of charities in society? of stakeholders. Let me explain, taking an
mus Foundation since 2001.
Prior to joining the bank, he Charities complement government spend- education project as an example. You need How is the Optimus Foundation involved in
was Director for four years at ing. They have advantages: they can take on the children, their parents, the teachers, the South Africa?
Terre des Hommes, the largest more risk than projects financed with taxpay- religious leaders, the politicians and in a We deliberately did not want to go into foot-
internationally active children's
charity organization in Switzer- ers’ money. That allows charities to take up small community you also often need a fig- ball. Projects have to last beyond the final
land. He qualified as primary new areas and frees them from the need to urehead. You have to ask the people in the match on 11 July, otherwise there is no sus-
teacher in Biel in 1985 and follow political processes, so they can act as community what they need; it’s called asset- tainability. In 2008, we started a project to
as SAWI marketing specialist
in 1991. trendsetters. Climate change is a good based community development. teach hospitality skills to young people with
example. Charities were talking about cli- poor education. The fact that there was a
Invest in Africa · Philanthropy Philanthropy · Invest in Africa
demand for this in the run-up to the World How do you measure and assess UBS Optimus Foundation: for the good of the children
Cup was a factor behind the success. Today, how effective a project is?
we are involved in a project to support young 1. Quantitatively: You measure how The UBS Optimus Foundation celebrates its willing to bring about long-term change.
children. many children went to school in the tenth anniversary in 2010. It was established We provide these partners with financial
past, and how many do now. by UBS on 17 December 1999 as a means of support as well as advice where necessary.
How important is South Africa for Africa? 2. What is the impact of improving the enabling the bank to participate in charita- We actively encourage the transfer of
South Africa is a role model for other African number? Maybe the province is pre- ble activities together with its clients. knowledge and the creation of new net-
states. For the western world it’s one of the pared to employ more teachers, works between the partners and other
safer countries to invest in and is easy to because leaders have recognized that Our vision sponsors.
relate to. South Africa has a pretty clear idea 80 children are too many for one We are committed to the overall wellbeing • In geographical terms, we concentrate pri-
of where it wants to go, and the resources teacher. of children. We work to ensure that children marily on the areas where there is the
to achieve that. The country has relatively 3. What are the consequences? Teach- and young people throughout the world greatest need for action in respect of the
good expertise at the institutional level, good ers have to be better trained as the area have access to education and can grow up key issues defined above, namely the sout-
universities and a well-educated elite. The for the school and the number of pupils in an environment free from violence and hern hemisphere*. The issue of protection
problem is that 70% of the population is grow. sexual abuse. At the same time, we support against violence and sexual abuse is also
unable to benefit from this. But things 4. What is the impact? The new model targeted research to improve the health of supported in northern, western and indus-
should be different 20 years from now. It is encourages children, so more children the most disadvantaged sections of the glo- trialized countries as required.
extremely hard for countries that have never are educated. The increased prestige of bal population. • As a foundation established by UBS AG,
had an elite to build one up. schools motivates teaches, so the teach- we promote the joint philanthropic com-
ing quality rises. Within 10 years, most Our mission mitment of clients, managers and
If I wanted to start being a philanthropist in of the children will have a profession, • We support the development, validation, employees. We do our utmost to ensure
Africa, which country would you recom- reducing poverty. promotion and dissemination of innova- that the funds entrusted to us are levera-
mend to me? tive approaches and ideas to improve the ged to the greatest possible effect.
Philanthropists need to be able to weigh up education, protection and health of disad- • Monies are invested in a targeted and
risk and return, like any other investor. If you vantaged children throughout the world, direct manner, and with UBS covering all
have never been to Africa, don’t go straight irrespective of their political, religious or the foundation’s administrative costs,
to Mali or Ethiopia, go to South Africa. The ethnic background. every franc donated goes straight into
same applies to donors: it’s best to invest in • To this end, we seek expert partner organi- projects.
a country you know a little bit about. So zations who will act as innovators and are
South Africa is one of the countries to rec-
ommend, along with Botswana, Ghana and
Tanzania. We advise against going into con-
flict countries.
Our funding areas
What are the next steps? Children
We can raise our game. Initially at Optimus Education &
Global Health Research
we just supported established aid agencies, Child Protection
Education & Upbringing Child Health
as we didn’t want to make mistakes. Today
Protection from Violence
we are supporting many much smaller & Sexual Abuse
Neglected Tropical Diseases
organizations, offering a much greater Optimus Study Stop Buruli
potential return.
See also: www.ubs.com/optimus
Photo: Pierre-William Henry, Neuchâtel
“Everybody is looking forward to
the World Cup”
Sheila Mokoboto-Zwane, Head of the Southern Africa
office of the UBS Optimus Foundation, shares the
excitement of the upcoming World Cup in her home
country: “It's an African, not just a South African World
Cup Competition because it stands to benefit the con-
tinent as a whole. It is bringing both blacks and whites
and also rich and poor together. ” Sports promote race
relations and improve learning – a fact that has been
identified and utilized by education projects generally and early childhood
development programs specifically, which is a core area for the UBS Optimus
Foundation in Sub-Saharan Africa.
Sheila is convinced that the region is well prepared to welcome fans to the
biggest sports event ever held on African soil. However, will there be a longer-
term impact for the region? “Absolutely! Our Tourism and Hospitality indus-
try will definitely benefit in the longer term. I hope that visitors will love the
country enough to return for a longer stay and explore our country’s hospi-
tality further, so that they can enjoy our beautiful weather, scenery, and per-
haps return for a safari at the famous Kruger National Park or one of the many
other parks we have in the country. Africans will also profit from the improved
roads and infrastructure.”
To avoid “white elephants”, it will be important that people from disadvan-

taged regions are able to profit from the newly-built infrastructure and sta-
diums, using them for football or rugby clinics and competitions, for exam-
ple. A lot of the locals have also been trained in different languages, e.g.,
French, German, Italian, Spanish, Portuguese, etc, so that hospitality for World
Cup guests is enhanced. Many local people have added to their skills base by
learning additional languages; this training will remain with them long after
the 2010 World Cup wraps up.
From 11 June on, Sheila will put on a rainbow-colored football shirt at work
and support the “Bafana Bafana” (South African football team). She is also
organizing public viewings in townships for people who cannot afford to
attend the matches. Sheila adds that Switzerland is her second home, so when
Bafana-Bafana is not playing, she will be supporting the Swiss team!
World Cup 2010 · Focus Focus · World Cup 2010
And the World Champion is… 2

Past performance and experience teams had never met in the 16 previous
are indicators of future World Cups. However, even more astonish-
Back by popular demand, we once The moral of this story is that one needs performance ing than this oddity was the fact that,
to be humble about the predictive power of according to their Elo ratings (see page 28),
again open our econometric toolbox
one’s models. Successful forecasting can Unlike in the case of the European Champi- the matchup was between the weakest
and use quantitative models to assess often depend as much on luck as on skill, onship, past performance and experience Brazilian and the second-weakest German
the likely winner of the upcoming which is a lesson that is too often forgotten matter considerably when assessing the fate team ever to participate in a World Cup.
World Cup. However, drawing on our when it comes to quantifying the future. This of a team at the World
should also serve as a warning to our read- Cup. Of the 18 World
past successes and especially our past
ers: take the following with caution and a Cups, five have been
failures, this time we are making a pinch of good humor. After all, football is won by Brazil, four by
more cautious prediction of the tour- only a game (in most countries). Italy, three by Germany,
nament’s outcome. Given our experience, we have decided two each by Argentina
not to go down the perilous path of predict- and by Uruguay, and
ing a likely outcome for the whole World one each by England
Forecasting football: Cup. Rather, we assess the probability of and France. Hence, it
1 more art than science being among the final 16 (i.e., surviving the should not be a surprise
first round), being among the final four and, that picking the winner
During the 2006 World Cup, our model’s of course, winning the whole thing. out of this small group is
predictions were very close to perfect. Our a rather safe bet. More-
forecast champion, Italy, which had only an over, Brazil is the only
outsider status among experts, managed to team that has partici-
Explanatory factors
win its fourth title. In addition, our model pated in all the World
As in our previous studies, we rely exclu- Source: www.dreamstime.com
correctly predicted 50% of the semi-finalists, Cups; Germany and
sively on three factors to estimate the dif-
75% of the final eight and 81% of the final Italy each have missed two. All three teams Eight teams had better Elo ratings than Brazil
ferent winning probabilities:
16. This astonishing result led to a rather were present in the last 12 World Cups. and Germany before the 2002 World Cup
1) past performance;
large amount of press coverage worldwide The number of times those three teams started.
2) whether or not a team is a host nation;
and earned the inventor of the model his 15 appeared in the finals is also impressive: At least one surprise guest
and
minutes of fame on CNN.
3) an objective quantitative measure that
seven times for Brazil and six times each for 4 in semi-finals
We came under tremendous pressure to Germany and Italy. It is even more astonish-
assesses the strength of each team three
use the same model to predict the outcome ing that only six teams reached the last 10 The final four of a World Cup is slightly more
months before the start of the World
of the 2008 European Championship, and World Cup finals: the three aforementioned, open than the finalists. Twenty-three teams
Cup. Socioeconomic factors like popula-
we relented – despite reminders that it has Argentina, France and the Netherlands. have made it to the final four. But here again
tion size or GDP growth have been proven
yielded unpredictable results several times in five teams (Argentina, Brazil, France, Ger-
to have no explanatory power when it
the past. Who can forget the fabulous run 2002 World Cup final many and Italy) dominate – accounting for
comes to forecasting the performance of
of the Danes in 1992 or the unbelievable win
a specific team. 3 (Brazil vs. Germany) was a 53% of all final four places. Nevertheless, it
of the Greeks in 2004? Our forecast winner, premiere, not a classic seems that at every World Cup there is at
the Czech Republic, did not even make it into least one surprise participant in the semi-
the second round. Even worse, although our Especially worth noting in this context is the finals. In 2006, many saw Portugal in this
model correctly predicted 63% of the sec- 2002 World Cup final between Brazil and role, although it had been a semi-finalist in
ond-round teams, it forecast none of the Germany. What might sound like a classic 1966. Here again, 2002 is especially worth
final four. World Cup game was actually a first as both noticing: Two rather unlikely participants (at
least at first glance), South Korea and Turkey, the continent advantage. So far, out of the which, taking into account the former Soviet 2010 the weakest World Cup
reached the semi-finals. However, one needs 18 World Cups, 10 took place in Europe, six Union, has almost always made it into the 7 since 1994
to acknowledge that South Korea had accu- in Latin America and two on “neutral final 16 (when it was present). But can we
mulated a great deal of experience (five pre- ground” in the US in 1994, and in Japan and objectively assess the current strength of a The 2010 World Cup, which has an average
vious World Cup appearances), and was also South Korea in 2002. The score for Europe national team? One can, of course, take the Elo score for all teams involved of 1,785, is
one of two host nations (the other being versus Latin America is nine to nine. Latin evaluation of bookmakers as a measure of the weakest World Cup since 1994 (despite
Japan). American teams have won all the World subjective strength. Another alternative the fact that three teams – Brazil, Spain and
Cups held on their turf. European teams would be to consult the official FIFA rankings. the Netherlands – have an Elo score above
Being host is an advantage have won nine out of the 10 held on theirs. What we prefer to do (as we have in our two 2,000. The last World Cup with three such
5 Brazil is the only Latin American team that previous football studies), is to rely on the Elo strong teams was in 1978 (Brazil, Germany
Being the host nation of the World Cup is has won in Europe. It has also won twice on ratings (see box) of the teams in the month and the Netherlands). This World Cup will
obviously an advantage. One-third of all neutral ground. of March preceding the World Cup. also host the strongest Spanish team ever to
World Cups organized so far have been won Since 1950 and the go to a World Cup,
by the host. Twelve hosts (63%) have surprising win by the strongest Eng-
Historically long odds for the
reached the final four and all hosts have 6 strongest team
Uruguay, no team with lish team since
reached the final 16 (i.e., survived the first an Elo rating below 1970, the strongest
round, when the World Cup had less teams All the historical data in the world cannot 1,820 has won the Dutch team since
than the current 32). The biggest exceptions turn an uncompetitive team into a winner. World Cup. As men- 1978, the strongest
so far was Spain in 1982, which though hav- Countries that failed to qualify for the 2010 tioned above, the Brazilian and Ger-
ing a rather strong team did not manage to World Cup include some traditional football weakest team (as man teams since
reach the final four, and the upset of mighty countries like Hungary (two times World Cup measured by its Elo rat- 1998, and an Ital-
host Brazil by tiny Uruguay in the 1950 final. finalist), and Sweden (once World Cup final- ing), to win the World ian team of compa-
In the same vein as the host advantage falls ist and two times third place), or Russia, Cup was Brazil in rable strength with
2002. The strongest Source: www.dreamstime.com
the one that cap-
team to win the World tured the World
Elo Ratings
Cup was Germany in 1974, followed by Brazil Cup in 2006. Hence, almost all historical
Elo ratings were developed by the Hun- improve a team’s Elo ranking much more
in 1962 and Brazil in 1970. Interestingly favorites are traveling to South Africa with
garian-American Physicist Arpad Elo than beating a non-powerhouse like
enough, with the exception of Germany in very strong teams, making it very unlikely
(1903-1992) to measure and rank the Malta or Andorra. Moreover, for example,
1974, the strongest team going into a World that, with the noticeable exception of Spain,
strength of chess players. The ratings winning abroad gains more points than
Cup has never won it. we will see a new, fancy World Cup winner
have been used in other sports like ten- winning at home, winning a World Cup
The most disappointing teams in World in 2010.
nis but especially in football, where they qualifier gets more points than winning a
Cup history, i.e., the ones with very strong
have proven to be a better indicator and friendly, and winning with a score of 5 to
teams that did not even make it into the sec-
forecasting tool for determining the 0 will give more points than winning by 2
ond round were France, Portugal and
objective strength of teams than the to 1. A nice feature of Elo ratings is that
Argentina in 2002, Spain in 1998 and Italy
FIFA ranking system. The Elo method for you can compare the strength of teams
in 1950. The most surprising teams in World
ranking football teams not only takes across times. For example, the Brazilian
Cup history, i.e., the ones with rather low Elo
into account the number of wins, losses team, which won the World Cup in 2002,
ratings that made it into the semi-finals,
and draws of each team, it also exam- was significantly weaker than the one,
were South Korea and Turkey in 2002
ines the conditions under which those which won it in 1962. You can find the rat-
(already mentioned above), Uruguay in 1950
events occurred. As a result, beating a ings at
and Argentina in 1990.
strong team like Brazil or Spain will www.eloratings.net.
Round of 16: African teams Out of the top eight contenders to win
8 – except South Africa – cannot the World Cup, six are former winners and
exploit host advantage the top three are the usual suspects. This
Table 1: Round of 16 Table 2: Semis
might sound boring but, as stated above,
Country Likelihood to reach the round of 16 Country Likelihood to reach the semi-finals
Looking now at the likely outcome of the past performance is a very strong predictor
World Cup according to our model, tables 1, when it comes to forecasting the likely win-
South Africa 78% Brazil 49% 2 and 3 list the 20, 12 and 8 most likely ner of a World Cup.
Brazil 74% Germany 38% teams to emerge from the round of 16,
Spain 73% Netherlands 34% reach the semi-finals and win the World Cup. And the winner of the 2010 World
Netherlands 68%
Italy 32% Despite starting in its own World Cup with a 10 Cup may be Brazil
England 63% much weaker team than the two it fielded in
Spain 28%
Germany 59% its previous World Cup appearances (1998 Many readers might feel that European
France 22% and 2002), South Africa’s status as the host Champion and secret favorite Spain is under-
Italy 59%
Argentina 55% England 21% nation boosts the likelihood that it will make rated according to this model. Our English
Mexico 52% Argentina 20% it into the round of 16. So far, every host readers will certainly feel the same about
Chile 49% South Africa 17% nation has at least moved one round beyond England, though here there might be a home
France 49% Uruguay 14% the first one. Any other outcome would be bias. The truth is, however, that both teams
Portugal 47% a huge surprise – even though South Africa have tended to be underachievers when it
Portugal 14%
enters this World Cup with the weakest Elo comes to the World Cup. In the last three
Serbia 42% Chile 13%
ranking of any team, even below North World Cups, Spain and England were ranked
Uruguay 42% Source: UBS Wealth Management Research Korea and New Zealand. Besides South among the strongest teams but did not
USA 33%
Africa, there is no other African team on this make it beyond the quarter-finals. Spain’s
Australia 33% top 20 list, but teams with a likelihood of best World Cup result was fourth place in
Denmark 32% reaching the second round of more than 1950. England’s performance at World Cups
Table 3: Winner
Switzerland 30% 25% are Didier Drogba’s Ivory Coast and has been better, having won it once in 1966
South Korea 29% Samuel Eto’o’s Cameroon. and finishing fourth in 1990. Given the
Country Likelihood to win the World Cup 2010
Paraguay 29% objective and subjective strengths of both
Brazil 22% teams and of their respective national cham-
Source: UBS Wealth Management Research
Germany 18% Semi-finals: the usual suspects pionships, the stardom of many of their play-
Italy 13% 9 plus two surprises ers and the football frenzy in both nations,
Netherlands 8% this can truly be seen as an underachieve-
France 6% This home bias could help South Africa reach ment.
Argentina 5% the semi-finals, though we view such an out- For the sake of keeping the World Cup
Spain 4% come as very unlikely. We are more likely to interesting and making forecasting its out-
England 4% see some of the traditional teams in the come even more challenging, it would be
semis. Surprises could come from Chile and great if one of those two teams can engineer
Source: UBS Wealth Management Research
Portugal and (going beyond this top 12 list), a big surprise in Johannesburg on 11 July.
South Korea, the US or Australia, which have andreas.hoefert@ubs.com
rather strong teams, according to their Elo Chief economist, UBS AG
rankings.
Football pundit · Interview Interview · Football pundit
“Strong coaches and strong managers choose to only one coach heading up the team, there African Cup of Nations, games were held in
are dozens of these ”medicine men” in the 30° heat, something the African players are
surround themselves with strong back-room staff” background, each with a different approach. used to. In addition, the pitches will be well
Such a structure is destined to fail when it manicured – African players may be more
How do we want to appear as a team? If comes to both football and business. used to playing on bumpier terrain. Further-
The chief scout of the German somebody does not wish to abide by certain more, I don’t think that the South African
national team is looking to use values, he can still go on and achieve success, A lot of African footballers ply their trade in crowds will get behind the other African
strategic thinking to bring football but I would not want to work with him. The Europe and many of them play for top clubs. teams.
forward. He believes that although motto for me and my team is “think like a But, for the most part, African national
team, talk like a team, act like a team”. In teams have performed disappointingly at The approach you have brought into
African national teams are often football, and indeed in many other areas of past World Cups. Do you think this generally Joachim Löw's team, and previously into Jür-
littered with individual stars, they life, there’s often a big difference between stems from problems like the ones you iden- gen Klinsmann's set-up, places more impor-
often lack cohesion. what people say and what people do. I place tified with the Nigerian team? tance on statistics and analysis. Does football
great emphasis on strategic thinking and as A coach like Guus Hiddink, who has coached fit neatly into such equations?
Urs Siegenthaler, can you describe your job such, have created a strategic database. How the South Korean, Australian and Russian I want to put people first and then come
for us? does a team play, how does a player act, national sides and can understand different back to the relationship between people and
Urs Siegenthaler: As chief scout for the Ger- what's going through the mind of our oppo- cultural mentalities, would have the qualities technology. Employing a scout just to ease
man Football Association, I am responsible for nent's coach, what formation does a team required to lead an African team to success. his conscience is not enough. A casual con-
watching players and games on behalf of the use. I think that these ideas have helped Ger- A coach has to understand how to deal with certgoer can’t recognize if a violin plays a
German national team. I also advise the man football make up a lot of ground on the circumstances in Africa; after all, it is cer- note a second too late. The same applies to
team’s coach and his staff; this is now Joachim other countries. Looking beyond football, I tainly not a lack of quality African players scouts. Not all scouts can correctly apply the
Löw, previously it was Jürgen Klinsmann. also think that this approach can be applied that stands in the way of success. analysis programs that all teams now use
to companies. and draw the right conclusions. They are not
In German football you have a reputation for How do you rate the chances of the African all able to recognize what a player can and
being an innovator. What do you say to this? You were in Angola for three weeks at the teams in their “home World Cup?” can’t do and whether he can be coached to
I base my approach on football, but not African Cup of Nations. How do you see the I doubt any of the teams will be particularly do something different. It is even more diffi-
exclusively so. It’s also a question of ethics. future in terms of Africa's economies and successful. The Africans are beginning to cult to analyze entire teams and playing sys-
businesses? adopt a European approach to the game; tems. And you also need people to receive
To highlight the problems of Africa and they are holding back more, playing a tacti- this information, who are prepared to take it
Urs Siegenthaler African countries, we can use the Nigerian cal game. Their passion for the game is no on board and implement it.
has been chief scout for the German national football team national football team as an example. For longer there. In terms of the way the game
since 2005. The former FC Basel and Young Boys Bern player many years now Nigeria has produced a is played, France has the most influence on Does the German team now play differently
obtained his coaching certification from the sports university
in Cologne. Siegenthaler's
number of outstanding footballers, but the African football. The coaches are French, the against certain opponents than it did four
main job away from football is national team constantly fails to live up to training facilities are set up according to the years ago because you have been able to
as an engineer in the construc- expectations. I believe that the cultural dif- French model and players often begin their observe and analyze these teams better?
tion industry. On August 1,
2010, Siegenthaler will
ferences between the different tribes, cul- European careers with French clubs. How- Of course you always need players who can
become the sporting director tures, family clans and religions are so signifi- ever, I have my doubts as to whether the put these demands into practice on the
at Hamburg SV, specializing in cant that it is impossible, or at least very dif- European model is the best way forward for pitch. Any coach can tell his team to “get out
sports psychology, team devel- ficult, to create a cohesive footballing unit. African football. Another factor is that the there and score some goals”, but working
opment, scouting and develop-
ing young talent. Parallel to There are still “medicine men” who now, for World Cup in South Africa is taking place in out how to do this is a completely different
this, he may continue his role example, work as lawyers, and have a huge their winter. Evening games will be played in thing. The art of a coach or manager is being
for the German national team. influence on their customers. While there is temperatures of around 6 degrees. At the able to recognize “what can I ask my play-
Football pundit · Interview Interview · Football pundit
ers to do, what will they understand, and should at first assume some responsibility. “Five years is a long time in football –
what can they go out and do on the pitch?” However, they are nowadays often unable to
Despite what everyone says to the contrary, do so as the connection between club and but not in wealth planning”
I still believe that nobody is more intelligent player is no longer what it once was.
than a football player. Footballers have to According to “France Football”, Barcelona often suspicious. For many of them, a period
make decisions in a fraction of a second, You have seen and got to know a lot of and Argentina star striker Lionel Messi is said longer than five years is an eternity and they
adapt to new situations, keep their eye on coaches. What makes a successful coach? to have earned EUR 33 million in the last often worry about how secure their invest-
the ball, and they must do so while under A good coach, and indeed a good manager, twelve months, making him the game’s high- ments will be. They would prefer to have
constant physical exertion. However, this must have excellent social skills, empathy, est earner. But not all professional footballers everything in cash, with some of their assets
intelligence is often limited to the playing specialist knowledge and a high level of are as exceptionally gifted as Messi, and as invested in real estate.
field; as we’ve seen many times in the past, expertise. He must be able to gauge the abil- such do not earn anywhere near as much as It is the client advisor’s responsibility to
many footballers have trouble coping with ity of this team and his staff and should not the 2009 FIFA World Player of the Year. show them that by holding cash, they are
the simpler things in life. be dictatorial, he must listen to those around Nevertheless, almost all professionals missing out on the often higher returns
him. Strong coaches and strong managers playing top-flight football in Europe or Latin offered by other asset classes and that
Will this systematic entry of data result in also choose to surround themselves with America will earn the majority of their life- depending on the market and currency, and
“play books” becoming the norm in foot- strong back-room staff. long income between the ages of 20 and 35. given the uncertain length of their career at
ball? And even this is conditional upon avoiding any one club in a particular country, buying
Football still lags behind many other sports What makes a complete footballer? major injuries and maintaining the sort of real estate may not always make sense.
in this respect. These sorts of “automated Talent isn’t just about shooting at goal. Truly form needed to play at the highest level. Bankers often continue to advise footballers
plays” work relatively well in terms of talented players set themselves goals in train- Footballers must therefore be particularly on their finances even after they have retired.
defense, but going forward this is not the ing – they understand them, take them on careful when it comes to financial planning. A player returning home to Argentina after
case; this is because football – and this is board, train towards them and put them into Raphael von Arx, a UBS client advisor for a playing career abroad who is about to retire
what I think is part of the beauty of the game practice on the pitch. In addition they are South America in Basel, has a client portfo- has already invested in a real estate project
– is only predictable up to a certain point and strong leaders. Their presence elevates the lio including two dozen professional foot- that is performing well.
this is likely to remain the case for now. level of their teammates. This is also the ballers, whom he has known for many years Von Arx believes that most footballers are
Improvisation continues to play a key role. same in business. and with whom he enjoys a special relation- responsible with their money, even if they
Interview: pierre.weill@ubs.com ship. perhaps occasionally splash out on a sports
You have a lot of contact with footballers. Investment writer, UBS AG car, which given their income is still well
How do you go about looking after these Uncertain economic situation within their budget. “Many players support
sportsmen, many of whom are still very back home their relatives in Africa or South America.”
young? Do the players, many of whom earn “Most South American and African foot- Almost all players advised by von Arx do not
millions, know what to do with their money? ballers come over to Europe when they are employ agents when it comes to their finan-
Unfortunately I often see things end in tears. still very young,” explains von Arx. “It is usu- cial affairs, even if they have an agent for
A lot of players are paid too much money ally their first time abroad and they often other matters, such as contract negotiations.
when they are very young, and by very young come from humble backgrounds.“ However, The biggest difference between foot-
I mean they are often under twenty. A lot of the players are well aware that they are not ballers and other clients is their income pro-
players come from humble backgrounds and guaranteed to earn astronomic sums. Bank file. Nevertheless, they ultimately have the
their families are not used to dealing with so advisors try to show players that they should same financial goal. They are looking for safe
much money. It is often the father or another save and invest some of the money they earn investments that provide a steady return.
family member who manages the player's today for their lives after they have retired pierre.weill@ubs.com
finances even though they are not equipped from the game. Players from countries with Investment writer, UBS AG
to do so. I think that in these cases, the clubs unstable currencies and weak economies are
Economics of Football · Africa Africa · Economics of football
Muscle drain or muscle gain? African leagues, the less African players will Brazil is the most successful national team
be willing to stay in Africa. in the history of the World Cup and a five-
If more African football players play in the French and English football leagues. time winner.
Today, a much larger number of Africans Arising opportunities: Muscle gain? While not having won a World Cup yet,
for European clubs, does it foster
play in Europe, and also in the United States At the same time, however, there may well African national teams have had some
development in Africa, or does it and in Asia. Several of them have made it be “muscle gain” associated with African notable successes in international tourna-
deprive the continent of its talent? into Europe’s top teams, including players under contract abroad: The growing ments in recent years. As a positive exam-
Cameroonian Samuel Eto’o at Inter Milan, success of African national teams in the last ple of the promotion of young players in
In 1889, Rotherham Town Football Club Ivorian Yaya Touré at FC Barcelona, and Ivo- decade has been fostered by the transfer of Africa, Ghana won the Under-20 World
recruited Arthur Wharton as the first rian Didier Drogba and Ghanaian Michael playing techniques and skills that players Cup as the first African team in 2009, and
African professional football player under Essien at FC Chelsea. Almost all players of acquired by playing for international top Nigeria was the runner-up at the Under-17
contract with an English club. At the time, African national teams are currently under teams. Prominent African players have also World Cup the same year. Following the
football was widely unknown on the contract with clubs in Europe, while hardly helped open an increasing number of foot- participation of several North African
African continent, but the talents of its ath- anyone plays in Africa. ball training schools and academies in teams, World Cups in the last two decades
letes were quickly acknowledged by the Africa in which young talent is promoted. also saw a number of debuts of teams from
colonial powers: Over the next decades, Looming conflicts: Muscle drain? Such schools also provide formal education, Sub-Saharan Africa. Having qualified for
several Africans played in Europe especially Some critics have raised concerns about advise players to not solely rely on football the first time, Senegal achieved a surprise
successful African players becoming less as a future occupation and offer a perspec- success in 2002 by beating the reigning
willing to play for their national teams, tive besides sports. Generally, the example French world champions and reaching the
because, for instance appearances in of successful Africans in Europe may inspire quarter-finals, being only the second
Europe’s prestigious Champions League are youngsters in Africa to strive for a similar African team to rank among the final eight
more lucrative. Such potentially conflicting achievement by training hard. Winning an teams since Cameroon in 1990. Now, if
commitments are only the tip of the iceberg engagement with a European club presents African national teams could follow Brazil
of criticism of “muscle drain” out of Africa. a way out of poverty for each individual and make even better use of the skills and
Allegedly, especially when they first come to African player, but their financial remit- experience that their players acquire in the
Europe, African players in European leagues tances to Africa are also being felt in play- world’s best clubs, then, yes, one of the
are often employed under unfavorable con- ers’ families, communities, home clubs, and next football world champions may well be
ditions compared with other players, scouts so on. Lastly, the success of African players an African team…
exploit the lack of experience of young abroad has created pride and a sense of jenny.weinkopf@ubs.com
Africans to reap the benefits from trans- identity with many Africans – often feeling Analyst, UBS AG
fers, and local teams in Africa have no the stigma of poverty, their soccer stars are
means to compete for talent – a practice positive examples of achievement.
that FIFA president Sepp Blatter in 2003
denounced as “neo-colonialism” and “rob- More like Brazil: Have players abroad
bing the developing world of its best play- AND win World Cup titles
ers.” Very few of the top African players are Not only African players strive to succeed in
still under contract on their home conti- the European leagues: For instance, of
nent, which is one of the reasons for the Brazil’s current squad, only a handful of
low attractiveness of African leagues for players are under contract with clubs in
fans and sponsors, decreasing revenues and Brazil, while the vast majority plays in
media attendance for local clubs. This trend Europe. For Brazil, this does not seem to
Source: www.dreamstime.com is self-reinforcing: The less attractive the have lessened the national team’s success:
Economics of Football · Valuation Valuation · Economics of Football
Money can buy you a Ronaldo, but not a World Cup sporting successes and the market value of its
Fig. 2: German efficiency
players (the sum of estimated transfer values
of the individual players), we have tried to cal- Over- and undervaluation of the average player in Europe’s
top revenue generating clubs (in mn Euro)
At its best, a football team is more than its sporting successes, which have been culate the ’fair value’ of the world’s top 100
just 11 players. Comparing the teams’ below the club’s own expectations during national teams. By ’fair’ we mean the price a Werder Bremen (17)
Hamburger SV (11)
recent years. According to the study, rev- team should have, if we only consider vari- Arsenal (5)
sporting quality with the aggregated enues of Europe’s top soccer clubs grew by ables related to its sporting quality, like pre-
Newcastle United (20)
Bayern Munich (4)
transfer values of their players, we find more than 220% since 1997, with broad- vious successes, current ranking, and the
Olympique Lyonnais (13)
Liverpool (7)
that England’s team is most overvalued, casting revenues being the main driver. As average age. In our model, these variables Manchester United (3)
Olympique Marseille (14)
AC Milan (10)
whereas the US boys offer the highest Spain’s unemployment rate has risen from explain roughly 70% of the aggregated mar- Schalke 04 (16)
8% in 2007 to 19% now, one would expect ket value of the teams. For the 31 teams1 that AS Roma (12) Numbers in parentheses indicate
quality for money. match day revenues to collapse. Instead, qualified for the World Cup, Fig. 1 shows the
Chelsea (6)
Borussia Dortmund (18)
the club’s revenue ranking
in the 2008/2009 season
Tottenham Hotspur (15) according to a Deloitte report
At least since Spanish football club Real attendances in Real Madrid’s Santiago Bern- difference between the current transfer value Internazionale (9)
FC Barcelona (2)
Madrid paid a record EUR 94mn for Por- abéu stadium and Barcelona’s Camp Nou and the ’fair value’ of the average player in a Juventus (8)
Manchester City (19)
tuguese superstar Cristiano Ronaldo, it has have so far been higher on average than team. The results confirm some of the anec- Real Madrid (1)
become obvious that there is real money before the crisis. Bread and circuses, the dotal evidence: England has the most over- –1.0 –0.5 0 0.5 1.0 1.5 2.0
involved in the world’s most popular sport. Roman poet Juvenal once said. His words still valued squad, followed by France, Argentina Source: UEFA, transfermarkt.de, Deloitte, UBS WMR, as of March 2010
Sky-high transfer fees and salaries, however, seem to hit the nail on the head. and Spain. In contrast, the US, Greece,
do not always translate into championship Paraguay and Mexico have the most under- belonging to both Europe’s most underval-
titles. For Real Madrid, the investment seems Champions on paper valued, or ’quality-for-money’ teams. ued and top-earning clubs according to
to be paying off nevertheless, at least com- It is widely recognized that at its best, a team Whether or not this will help the US to defeat Deloitte (Fig. 2). In contrast, Real Madrid,
mercially. is more than just 11 individual players. Eng- England in their group stage clash is a differ- Manchester City and Juventus are the most
land and Spain, for example, often had sev- ent question though. overvalued clubs. Most of them, however,
Bread and circuses eral of the world’s top players in their successfully capitalize on the commercial
While Spain is in a severe recession, national teams. However, since winning the Expensive Spain, efficient Germany value of their exclusive squads, also belong-
Deloitte just crowned Real Madrid the high- World Cup in 1966, England only once made Running a similar model for Europe’s 100 ing to the highest revenue-generating clubs.
est revenue generating sports club in the it into the semi-finals (in 1990), being most competitive clubs – taking UEFA’s team Money attracts superstars and superstars
world, recording revenues in excess of EUR defeated by Germany. Spain’s World Cup ranking as the yardstick – our model sug- attract money, and at least in the short to
400mn in the last season. This contrasts with record, despite its recent win of the Euro- gests that the top clubs in Spain’s Primera medium term, lacking top sporting perform-
pean Championship title, is División are, on average, the most overval- ance does not seem to spoil the party, as Real
even worse: only once reach- ued, whereas the best teams in Germany’s Madrid showed during recent years. Other
Fig. 1: Brand it like Beckham
ing the final four back in Bundesliga and in the French Ligue 1 appear clubs, like Manchester City, bridge financial
2.5
1950. to invest their money more successfully on gaps by relying on wealthy patrons. As long
2.0
average, from a purely sporting perspective. as money keeps on rolling in, in one form or
1.5
Slovak Republic
The big mismatch another, we would not be surprised to read

United States
New Zealand
Netherlands
1.0
Switzerland
Honduras
In order to understand the Chicken or egg, money or superstar about new record-high bids for the world’s
Paraguay
Denmark
Australia
Uruguay
Slovenia
Nigeria
Mexico
Algeria
Greece
Ghana
0.5
Korea
Brazil
Chile
0
distinction between a team’s On an individual club level, the German Bun- top players in the years ahead.
desliga stands out as combining commercial
England
France
Argentina
Spain
Portugal
Côte d'Ivoire
Serbia
South Africa
Italy
Germany
Japan
Cameroon
–0.5 michael.bolliger@ubs.com
–1.0 and sporting successes, with FC Bayern Analyst, UBS AG
–1.5
Over- and undervaluation of the average Munich, Hamburger SV and Werder Bremen
Data for North Korea was not available national team player, in million euros.
Source: FIFA, UEFA, transfermarkt.de, UBS WMR, as of March 2010
1
Data for North Korea was not available.
Appendix Publication data · Appendix
Publisher Translations
UBS AG, Wealth Management Research CLS Communication AG, Basel
P. O. Box, CH-8098 Zurich Desktop publishing
Editorial team Werner Kuonen, Rolf Müller, Margrit
Andreas Höfert, Editor-in-Chief Oppliger, Linda Sutter
Simone Hofer Frei, Deputy Editor-in-Chief Printing
Pierre Weill, Deputy Editor-in-Chief Neidhart+Schön AG, Zurich
Viviane Vajda, Martin Haas Contact
Product management UBS-Research@ubs.com
Christian Burger SAP No. 82067E-1001 Special issue
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s?
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orld Ch
2010 W
ow ned Which small country unexpectedly beat the mighty Brazil in the legendary
ient of this information and may under no circumstances be passed on to any other investor. Bahamas: This publication is distributed to private clients of UBS
ill be cr Maracanã Stadium in Rio de Janeiro to win the 1950 World Cup?
team w
W hich (Bahamas) Ltd and is not intended for distribution to persons designated as a Bahamian citizen or resident under the Bahamas Exchange Control Regulations.
N Uruguay
S Bolivia
R South Korea Canada: In Canada, this publication is distributed to clients of UBS Wealth Management Canada by UBS Investment Management Canada Inc.. Dubai: Research
How
H ow large
la rge is
is Africa’s
A fr ica’s share
sha re of
of the
t he global
g lo
loba l population?
poop
pu lation?
is issued by UBS AG Dubai Branch within the DIFC, is intended for professional clients only and is not for onward distribution within the United Arab Emirates.
A 8.9% Which team at the 2010 World Cup is the most overvalued (based on past
R 14.7% success in relation to the estimated transfer value of its players), according France: This publication is distributed by UBS (France) S.A., French "société anonyme" with share capital of € 125.726.944, 69, boulevard Haussmann F-75008
N 21.3% to estimates by Wealth Management Research (WMR)?
Paris, R.C.S. Paris B 421 255 670, to its clients and prospects. UBS (France) S.A. is a provider of investment services duly authorized according to the terms of the
B Germany
Which river has the potential to provide energy for the world’s largest
hydroelectric power station in the future?
R Switzerland "Code Monétaire et Financier", regulated by French banking and financial authorities as the "Banque de France" and the "Autorité des Marchés Financiers".
E England
I Congo Germany: The issuer under German Law is UBS Deutschland AG, Bockenheimer Landstrasse 2-4, 60306 Frankfurt am Main. UBS Deutschland AG is authorized
U Nile Which team at the 2010 World Cup is the most undervalued (based on past
and regulated by the "Bundesanstalt für Finanzdienstleistungsaufsicht". Hong Kong: This publication is distributed to clients of UBS AG Hong Kong Branch by
E Amazon success in relation to the estimated transfer value of its players), according
to estimates by Wealth Management Research? UBS AG Hong Kong Branch, a licensed bank under the Hong Kong Banking Ordinance and a registered institution under the Securities and Futures Ordinance.
How many independent countries make up the African continent?
I USA Indonesia: This research or publication is not intended and not prepared for purposes of public offering of securities under the Indonesian Capital Market Law
N 26 S Spain
E 37 P Argentina and its implementing regulations. Securities mentioned in this material have not been, and will not be, registered under the Indonesian Capital Market Law and
O 53
Which African team does Wealth Management Research predict has the Regulations. Italy: This publication is distributed to the clients of UBS (Italia) S.p.A., via del vecchio politecnico 3, Milano, an Italian bank duly authorized by Bank
Who is South Africa’s biggest trading partner? greatest chance of reaching the semi-finals?
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P USA R South Africa
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D China B Cameroon
offer under Luxembourg law, but might be made available for information purposes to clients of UBS (Luxembourg) S.A., a regulated bank under the supervision
How large is Africa’s share of global oil production? Where will the final on 11 July 2010 take place? of the "Commission de Surveillance du Secteur Financier" (CSSF), to which this publication has not been submitted for approval. Singapore: Please contact UBS
E 12% S Cape Town AG Singapore branch, an exempt financial adviser under the Singapore Financial Advisers Act (Cap. 110) and a wholesale bank licensed under the Singapore
S 5% O Johannesburg
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Which country is the world’s biggest producer of gold? This publication is distributed to clients of UBS Bank, S.A. by UBS Bank, S.A., a bank registered with the Bank of Spain. UAE: This research report is not intended
O South Africa to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates (UAE). The contents of this report have not been
J China
I USA
According to UBS Chief Economist Andreas Hoefert’s prediction,
in which city are the celebrations for the 2010 World Champions
and will not be approved by any authority in the United Arab Emirates including the UAE Central Bank or Dubai Financial Authorities, the Emirates Securities and
Which country has qualified for all World Cups to date?
likely to be most fervent?
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I Italy
of the
made up rs) ulated in the UK by the Financial Services Authority. A member of the London Stock Exchange. This publication is distributed to private clients of UBS London in
ution is we
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(The sol the correct ans
N Germany letters
of the UK. Where products or services are provided from outside the UK, they will not be covered by the UK regulatory regime or the Financial Services Compensation
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A Brazil
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Version as per January 2010.
Quiz answer
The letters of the correct answers spell out the solution word RIO DE JANEIRO. © UBS 2010. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
40 UBS investor’s guide special edition April 2010

n s?
ld C h a mpio
d 20 10 Wor
l l be c row ne Which small country unexpectedly beat the mighty Brazil in the legendary
te am w i Maracanã Stadium in Rio de Janeiro to win the 1950 World Cup?
W hich
 N Uruguay
 S Bolivia
 R South Korea
How large is Africa’s share of the global population?
 A 8.9% Which team at the 2010 World Cup is the most overvalued (based on past
 R 14.7% success in relation to the estimated transfer value of its players), according
 N 21.3% to estimates by Wealth Management Research (WMR)?
 B Germany
Which river has the potential to provide energy for the world’s largest
 R Switzerland
hydroelectric power station in the future?
 E England
 I Congo
 U Nile Which team at the 2010 World Cup is the most undervalued (based on past
 E Amazon success in relation to the estimated transfer value of its players), according
to estimates by Wealth Management Research?
How many independent countries make up the African continent?
 I USA
 N 26  S Spain
 E 37  P Argentina
 O 53
Which African team does Wealth Management Research predict has the
Who is South Africa’s biggest trading partner? greatest chance of reaching the semi-fi nals?
 P USA  R South Africa

 B European Union  E Ivory Coast
 D China  B Cameroon
How large is Africa’s share of global oil production? Where will the fi nal on 11 July 2010 take place?
 E 12%  S Cape Town

 S 5%  O Johannesburg
 C 2%  P Pretoria
Which country is the world’s biggest producer of gold?

 O South Africa
 J China According to UBS Chief Economist Andreas Hoefert’s prediction,
 I USA in which city are the celebrations for the 2010 World Champions
likely to be most fervent?
Which country has qualified for all World Cups to date?
of the
 I Italy ade up
s o lu ti on is m t answers)
(The orrec
 N Germany
 A Brazil
❚ ❚ ❚❚ ❚ letters
of the c
❚❚❚ ❚ ❚
❚❚
WORLD CUP 2010
Group A Group B Group C Group D Group E Group F Group G Group H
South Africa Argentina England Germany Netherlands Italy Brazil Spain

Mexico Nigeria USA Australia Denmark Paraguay Korea DPR Switzerland
Uruguay Korea Republic Algeria Serbia Japan New Zealand Côte d’Ivoire Honduras
France Greece Slovenia Ghana Cameroon Slovakia Portugal Chile
Group games
June 11 June 12 June 12 June 13 June 14 June 14 June 15 June 16

16:00 13:30 20:30 16:00 13:30 20:30 16:00 13:30
South Africa – Mexico : Korea Rep. – Greece : England – USA : Serbia – Ghana : Netherlands – Denmark : Italy – Paraguay : Côte d’Ivoire – Portugal : Honduras – Chile :
20:30 16:00 20:30 16:00 20:30 16:00
Uruguay – France : Argentina – Nigeria : June 13 Germany – Australia : Japan – Cameroon : June 15 Brazil – Korea DPR : Spain – Switzerland :
13:30 13:30
June 16 June 17 Algeria – Slovenia : June 18 June 19 New Zealand – Slovakia : June 20 June 21
20:30 13:30 13:00 13:30 20:30 16:00
South Africa – Uruguay : Argentina – Korea Rep. : June 18 Germany – Serbia : Netherlands – Japan : June 20 Brazil – Côte d’Ivoire : Chile – Switzerland :
16:00 16:00 20:30 13:30 20:30
June 17 Greece – Nigeria : Slovenia – USA : June 19 Cameroon – Denmark : Slovakia – Paraguay : June 21 Spain – Honduras :
20:30 20:30 16:00 16:00 13:30
France – Mexico : June 22 England – Algeria : Ghana – Australia : June 24 Italy – New Zealand : Portugal – Korea DPR : June 25
20:30 20:30 20:30
June 22 Nigeria – Korea Rep. : June 23 June 23 Denmark – Japan : June 24 June 25 Chile – Spain :
16:00 20:30 16:00 20:30 20:30 16:00 16:00 20:30
Mexico – Uruguay : Greece – Argentina : Slovenia – England : Ghana – Germany : Cameroon – Netherlands : Slovakia – Italy : Portugal – Brazil : Switzerland – Honduras :
16:00 16:00 20:30 16:00 16:00
France – South Africa : USA – Algeria : Australia – Serbia : Paraguay – New Zealand : Korea DPR – Côte d’Ivoire :
Last Sixteen
June 26 1 June 26 2 June 27 3 June 27 4 June 28 5 June 28 6 June 29 7 June 29 8

16:00 20:30 16:00 20:30 16:00 20:30 16:00 20:30
1A – 2B : 1C– 2D : 1D – 2C : 1B – 2A : 1E – 2F : 1G – 2H : 1F – 2E : 1H – 2G :
Quarter-Finals Semi-Finals 3rd Place
July 02 1 July 02 2 July 03 3 July 03 4 July 06 1 July 07 2 July 10

16:00 20:30 16:00 20:30 20:30 20:30 20:30
1EF5 – 1EF6 : 1EF1 – 1EF2 : 1EF4 – 1EF3 : 1EF7 – 1EF8 : 1QF2 – 1QF1 : 1QF3 – 1QF4 : 2SF1 – 2SF2 :
Final
July 11
20:30
1SF1 –1SF2 :

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© UBS 2010. All rights reserved.

Wealth Management Research April 2010

UBS investor’s guide

2010 World Cup in South Africa

Editorial 3 You will find a comprehensive Dear readers,

UBS investor’s guide special edition April 2010 3

Surprising Africa: Know the score

A lot to catch up on Leading, promising, and lagging Africa

To avoid “white elephants”, it will be important that people from disadvan-

And the World Champion is… 2

The big mismatch another, we would not be surprised to read

40 UBS investor’s guide special edition April 2010

 P USA  R South Africa

 E 12%  S Cape Town

Which country is the world’s biggest producer of gold?

Group A Group B Group C Group D Group E Group F Group G Group H

South Africa Argentina England Germany Netherlands Italy Brazil Spain

June 11 June 12 June 12 June 13 June 14 June 14 June 15 June 16

June 26 1 June 26 2 June 27 3 June 27 4 June 28 5 June 28 6 June 29 7 June 29 8

Quarter-Finals Semi-Finals 3rd Place

July 02 1 July 02 2 July 03 3 July 03 4 July 06 1 July 07 2 July 10

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