Joyce Cacho

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AGRICULTURE TRADE INVESTMENTComplements in
Economic Development

• Joyce Cacho

International Consultant Finance, Strategy, Food
Agribusiness Investment
November 8, 2004 Monterey, California, USA
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PRESENTATION OUTLINE

• International investment trends
• Why focus on Small- Medium-size enterprises?
• Financing vehicles for SMEs
• Capacity Building opportunities
• Conclusions

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PRESENTATION OUTLINE

• International investment trends
• Why focus on Small- Medium-size enterprises?
• Financing vehicles for SMEs
• Capacity Building opportunities
• Conclusions

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FDI A Global View (1980-2003)
FDI INFLOWS, GLOBAL and BY GROUP OF COUNTRIES
(Billions of U.S. dollars)
Source UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
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FDI to Africa 1980-2003
Source UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
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FDI as a percentage of Gross Fixed Capital
Formation 1980-2003
Source UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
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Africa FDI (Sub-Sahara North Africa) as
percentage of Total 1980-2003
Source UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
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BUSINESS REGULATIONS Starting Business
Source http//rru.worldbank.org/DoingBusiness
REFERENCE Methodology originally developed by
Simeon Djankov, Rafael La Porta, Florencio
Lopez-de-Silanes and Andrei Shleifer in The
Regulation of Entry, Quarterly Journal of
Economics, 117, pp. 1-37, Feb. 2002, and adopted
with minor changes here.
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BUSINESS REGULATIONS Registering Property
Source http//rru.worldbank.org/DoingBusiness
REFERENCE The methodology is developed in
"Property," an ongoing research project by Simeon
Djankov, Facundo Martin, and Caralee McLiesh.
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BUSINESS REGULATIONS Enforcing Contracts
Source http//rru.worldbank.org/DoingBusiness
REFERENCE Methodology originally developed in
Courts, by Simeon Djankov, Rafael La Porta,
Florencio Lopez-de-Silanes, and Andrei Shleifer,
Quarterly Journal of Economics, 118, pp. 453-517,
May 2003.
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BUSINESS REGULATIONS Hiring Firing
Source http//rru.worldbank.org/DoingBusiness
REFERENCE Methodology originally developed in
The Regulation of Labor, by Juan Botero, Simeon
Djankov, Rafael La Porta, Florencio
Lopez-de-Silanes, and Andrei Shleifer, Quarterly
Journal of Economics, forthcoming, November 2004,
and adopted with changes here.
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BUSINESS REGULATIONS Getting Credit
Source http//rru.worldbank.org/DoingBusiness
REFERENCE Methodology developed in "Private
Credit Around the World," a working paper by
Simeon Djankov, Caralee McLiesh, and Andrei
Shleifer, Department of Economics, Harvard
University, July 2004 and adapted from "Law and
Finance," by Rafael La Porta, Florencio
Lopez-de-Silanes, Andrei Shleifer, and Robert
Vishny, Journal of Political Economy, 106, pp.
1113-55, 1998.
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BUSINESS REGULATIONS Protecting Investors
Source http//rru.worldbank.org/DoingBusiness
REFERENCE Methodology developed in "Corporate
Theft," an ongoing research project by Simeon
Djankov, Rafael La Porta, Florencio
Lopez-de-Silanes, and Andrei Schleifer.
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BUSINESS REGULATIONS Closing Business
Source http//rru.worldbank.org/DoingBusiness
REFERENCE Methodology is developed in
"Efficiency in Bankruptcy," an ongoing research
project by Simeon Djankov, Oliver Hart, Tatiana
Nenova, and Andrei Schleifer.
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The Primary industries attract the least amount
of transaction suitors.
Source UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
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with Agriculture, Hunting, Forestry and Fishing
receiving the smaller share of Primary industry
MA.
Source UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
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Agri-based industries are attracting a declining
share of MA among Manufacturing industries.
Source UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
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Consistent Finance MA over time ? stronger
capital base for investing.
Source UNCTAD, FDI/TNC database
(www.unctad.org/fdistatistics).
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PRESENTATION OUTLINE

• International investment trends
• Why focus on Small- Medium-size enterprises?
• Financing vehicles for SMEs
• Capacity Building opportunities
• Conclusions

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Dominant farm characteristic SMALLHOLDER

• From a macro-economic AND private sector
  perspectivesmall can be GOOD.
• Cushions swings in the macroeconomy.
• Absorbs layed-off/retrenched workers.
• Best business size for innovation.
• For the GOOD to be an economic reality, it
  requires a host environment that makes it easier
  to be an entrepreneur, i.e. view farm
  production AND follow-on processing operations as
  businesses.

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Dominant farm characteristic SMALLHOLDER

• Investor appetite stronger for established
  businesses with a target market domestic,
  regional or internationaleven if it is at a
  fledgling stage.
• Key to Africa leveraging the fact of smallholder
  units of agricultural production to attract
  investors, is creating a business environment
  that supports smallholder private agriculture
  moving up the private sector food value-chain in
  the direction of primary and secondary processing.

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ALL LINKED Shift from subsistence, agri-based
economy to mixed, diversified economy

• Pivotal to the shift is including Agriculture in
  Commercial Policy framework
• Link agriculture to commercial financial systems
  via warehouse receipting laws in
  commercial/industrial policy
• Implement disincentives to export commodity
  agricultural produce...put another way, employ
  tax policies to foster value-chain investment and
  development
• Company Registration Postal Systems
• Its difficult to collect on bad debt or develop
  a relationship with a client at a P.O. Box.
• Changing company registration laws to physical
  addresses will make it easier for the traditional
  banks (who have capital to invest) finance
  small-, micro, and medium-size enterprises the
  characteristic size of entrepreneurs.

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PRESENTATION OUTLINE

• International investment trends
• Why focus on Small- Medium-size enterprises?
• Financing vehicles for SMEs
• Capacity Building opportunities
• Conclusions

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Micro Finance Institutions

• A model that has worked very well for the rural
  and urban poor ? still unmet demand
• Uses community collateral
• Very labor intensive
• Limited in scope for replicability
• Results include
• effective and efficient re-deployment of
  financial capital
• Lower than (traditional) bank averages on bad
  debts

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Investment (venture) Funds

• Few, but increasing in number
• Opportunity to link to the double-digit returns
  that are possible in emerging markets in Africa
• Focused on specific segments of the financial
  pie, such as US1M
• The SME sector lies somewhere in-between!

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Investment (venture) Funds

• A new opportunity via an Investment Fund for
  Kenya-owned SMEs to be established under a World
  Bank project
• Strong interest in attracting capital from
  private investment funds, private companies with
  funds with a corporate social responsibility
  requirement, and donors with development finance
  windows
• One such SME fund can only scatch the surface!
  There is opportunities to credibly deliver on
  more Investment funds in the US50K-500K zone.

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PRESENTATION OUTLINE

• International investment trends
• Why focus on Small- Medium-size enterprises?
• Financing vehicles for SMEs
• Capacity Building opportunities
• Conclusions

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Making Markets Matter, Inc.

• Ithaca, NY based NGO
• Annually, implements a workshop to build business
  skills of SME owner/managers
• Program developed via collaboration between
  Cornell University and Stellenbosh University
• Workshop takes place at Stellenbosch University
  not far from Cape Town, South Africa
• Opportunity for the US private sector to invest
  in human capital development of budding
  entrepreneurs
• Multi-year core funding
• Participant scholarships
• Contact www.marketsmatter.org

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Center for Excellence in Entrepreneurship
Development (CEED)

• An enterprise development center based at the
  United States International University (USIU)
• Created to provide critical support to the
  Enterprise and Business Sector in developing
  economies with specific focus on SMEs
• Annually, holds an International Entrepreneurship
  Conference in Kenya
• Opportunity to support strengthening business
  skills of entrepreneurs continent wide!
• Contact www.usiu.ac.ke/ceed

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PRESENTATION OUTLINE

• International investment trends
• Why focus on Small- Medium-size enterprises?
• Financing vehicles for SMEs
• Capacity Building opportunities
• Conclusions

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CONCLUSIONS

• FDI to Africa, today, is static.
• To move to a dynamic flow concept with FDI,
  requires
• Fostering SMALL BUSINESS development in the
  economy, with a special focus on agriculture
  based products, i.e. food, industrial chemicals,
  pharmaceuticals
• Increasing the number of investment funds
  targeted at SMEs
• Taking-up of opportunities to build
  entrepreneurial business skills by investing in
  programs in Africa
• Structuring tax incentives to support agri-value
  chain investment
• Reduction of business TRANSACTION COSTS, in the
  domestic AND international markets

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Thank You!

• Joyce Cacho, Ph.D.
• International Consultant
• Finance, Strategy, Food Agribusiness
• E-Mail cachojas_at_aol.com