SUNS  4294 Monday 5 October 1998


DEVELOPMENT: NEW COMMONWEALTH FUND TO AID CARIBBEAN

Ottawa, Oct 1 (IPS/Mark Bourrie) -- Commonwealth finance ministers agreed Wednesday to create a special fund to help capitalise new businesses in Caribbean countries, by making money available for investment in small and medium-sized businesses in the former British colonies of the Caribbean.

The Commonwealth Development Corporation (CDC) will underwrite $7 million of the fund, while at least $13 million will be pooled by commercial banks in the Caribbean, Canada and Britain. Investments will be from 10 to 49 percent of the value of the enterprise, with the CDC taking equity positions for the value of the investment. Hal Jackman, a Canadian financier, will be first chairman of the new fund.

Commonwealth Secretary General Emeka Anyaoku of Nigeria said the fund was part of a drive by the Commonwealth to raise money to underwrite new businesses and stock markets in developing countries.

The Caribbean fund is the fourth in the series of investment pools launched in the past two years by the Commonwealth. Others established are for Africa, South Asian, and Pacific countries of the Commonwealth.

"It has had the impact of encouraging the growth of stock exchanges in some of the regions concerned," Anyaoku said. "It also has helped the expansion of existing businesses and the start-up of new businesses, so we are very glad indeed to have the occasion of launching this one for the Caribbean region."

Lord Cairns, chairman of the CDC, said the 56-member association of countries that were formerly were part of the British empire will continue to create investment funds. "We are very proud to be able to co-operate with the Commonwealth secretariat in helping to find money for these funds to invest ourselves. And I think it's a tribute to the standing of the Commonwealth that, at a time when raising risk capital is quite a difficult exercise, we have been able to achieve it at this occasion," Cairns said.

About half of the African fund, the first investment pool created by the Commonwealth, has been invested.

"It will take some time to see how successful we are, but quite clearly, there are a wide range of industries, new businesses, extensions of new businesses, as well as other businesses, which are
looking for a fresh injection of capital," Cairns said.

"We shall avail ourselves, as we have in the other funds, of taking the advice of senior local businessmen who will help us to understand, analyze and give us a view of the future from within the countries concerned. Risk capital is at a premium at any stage. It is particularly at a premium at this stage. I hope that over the next three years we will be able to invest the majority of the money that we have at this moment.

"We should be able to achieve returns for ourselves, as well as helping those businesses achieve returns which justify the relatively high rate of risk that we will be undertaking as we invest in these new ventures. If we are successful, that will be an important signal to the markets... I have no doubt further funds will flow to the region. In that way, we will be able to capitalise, in the most effective way, the further development of the risk capital and also the stock markets and other financial markets of the region, he added.

Lord Cairns said it's likely that the CDC will want to have a representative on the board of companies that have been given a substantial percentage of their capital by the CDC.

"We will be wanting to back good domestic managers. We're not looking to manage, ourselves, but we are looking to be an active, progressive and, we hope, constructive shareholder and board member."

He said the issue of exit strategies (the selling of CDC equity once a company is operating strongly) "is clearly going to be an important one, and getting that right is something that we will look at from the word go. We would expect, on average, to be invested for five to seven years, which is quite long by the standards of normal venture funds. Clearly it is in our interests that the stock exchanges do develop fast, and we hope that will happen over that period, and that other trade buyers will appear, or, indeed, that the other managers will have done so well that they will want to buy us out."

Trevor Sudana, Minister of Finance of Trinidad and Tobago, said the fund could be a major spur to investment in the Caribbean. "The Caribbean area is an area of particular economic vulnerability, and in the last decade or so, changes in the international economic environment have adversely effected the economic environments of many of the beneficial countries of the fund and threaten their economic sustainability in the medium to long term," he said.

Sudana blamed the Caribbean's economic challenges on adverse trends in commodity prices, the phasing out of preferential trade in agricultural products with the EU, and the reduction of tariff barriers by WTO.
      
"In recognising the irreversibility of these trends, many of us have responded by embarking on major reform programs aimed at reducing structural weaknesses in our economies, transforming them from public-sector dominance that characterised the post-colonial era, into economies in which the private sector has a greater role in the growth process."

Caribbean countries have tried to keep pace by reducing government intervention and opening their countries to private investments. But Sudana said the old mercantile economy left the region with little investment capital and no locally-controlled financial institutions that could provide investment capital.

He said the Eastern Caribbean states were working hard to establish stock markets and venture capital markets.

"The Caribbean investment fund being launched today with a maximum capitalization of USD 20 million could not be more timely. It would provide the equity capital needed to facilitate growth in private sector investment in the short term, while the capital market consolidates and responds to the needs of the long term.

"An encouraging feature of the fund is the inclusion of a Caribbean-based financial and development-finance institutions, among the founding shareholders and the fact that it will be managed by the CDC out of its regional offices... Such a structure would contribute towards the optimisation of regional participation in investments, while ensuring that the in-depth knowledge that the financiers have of the region would help to select appropriate investments and structure them optimally."