#BTColumn – Prospects for National Equity Funds

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

By Dr. Basil Springer

And they said, Let us rise up and build. So they strengthened their hands for this good work. – Nehemiah 2:18

The Caribbean region is a land of abundant culture, history, talent, and natural resources, but it has struggled with economic development. To promote economic growth, the governments of the Caribbean need to place greater importance on entrepreneurship and innovation and create an ecosystem that encourages startups and small businesses.

I have observed over the past 25 years in the Caribbean that entrepreneurs with export potential ideas abound, and shepherds are available to provide life coaching and business mentoring services at an affordable fee. However, the major constraint is the lack of access to equity capital to get these businesses off the ground to a position of stability and, ultimately, sustainability.

Following my recent column entitled Equity capital fund with shepherding as security, I received an endorsement from a reader: “This model is definitely needed in Barbados and the Caribbean. Many entrepreneurs and individuals with innovative ideas lack access to the capital to get started. Besides, the person with the idea is not always the best person to handle the administrative functions of the business.”

My further recommendation is that a nucleus of Caribbean governments should hire an international broker to source investment capital (global, diaspora, regional and local) to start a Caribbean Equity Growth Fund (CEGF). This broker will set up a trust, with private sector trustees, in a Caribbean country to manage the CEGF. This trust will then invest in national equity funds managed by national trusts that invest equity in return for shares in local startups and small businesses. In each case, shepherding provides collateral and reduces the risk of failure.

The broker will tap into a range of global stakeholders, including benevolent organisations, universities, research institutions, governments of successful economies, and equity investors. This nucleus of Caribbean governments will pay the broker to set up the CEGF to source funds, prepare operational manuals and implement the plan.

An entrepreneur will apply to its national fund, which will assign a shepherd to prepare a business case. The entrepreneur will offer shares to the national fund in return for which the national fund will provide equity to capitalize the entrepreneur’s business.

The shepherd will protect against business risk, and as the entrepreneur’s business grows, it will buy back its shares from the national fund, giving the national fund an income stream from which to grow. Similarly, the CEGF will grow when the national fund buys back its shares from the CEGF.

To promote economic growth, Caribbean countries can learn from the success stories of other countries.

Vietnam is one of the fastest-growing economies in the world, largely due to private investment, strong tourism, higher wages, and increased urbanization. The Malaysian government introduced a policy labelled Malaysia Incorporated in 1981. Malaysia Incorporated is about managing the country as an entity in which there is a willingness of both the civil service and the private sector to be more frank and friendly. It is about managing a country like a business.

Israel, a small country with a population of just over nine million people, has one of the most successful and dynamic economies in the world, with a strong focus on innovation and entrepreneurship. They have achieved this through the establishment of the Israel fund, a government-backed organisation that provides support and funding for startups and small businesses.

The rags-to-riches stories of the high-growth economies of the Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan) are well-documented.

This CEGF example may be extended to any country or region in the world.

Nothing ventured, nothing gained.

Dr. Basil Springer GCM is a Change-Engine Consultant. His email address is basilgf@marketplaceexcellence.com. His columns are at www.nothingbeatsbusiness.com.