November 18, 2007
Development Idiocies & Developing Business in MENA
A short note, a rant, a bit of despair on the sheer idiocy of "economic development programs" and the combined worst of private and public sectors.
The following of course is not family friendly but does represent the frustration of one man trying to finance useful things in MENA. However, I do believe it important to discuss in a fairly brutal manner my observations (and ill-informed thoughts) on promoting investment and growth in MENA.
I was recently approached by some international development people who are working on some MENA export development - their brief (and let me add the team is nice, fresh-faced, local and international), assist local firms in exporting to drive growth.
In my mind, a beautiful precept. Except it is loaded down with idiotic preconceptions from the fuzzy-wuzzy political world. Social objectives - all fine and well in theory but when loaded on as some kind of "metric" reporting... I guess quarterly or something like that ... are nothing but fucking meaningless bureaucratic blither blather - and utterly airy thinking about market development. We are the World fucking marketing.
Let me confess right away I am not 100% sure how one can overcome certain real needs (as in ensuring public money is used well in business development support and nor corruptly) while at once not getting bogged down in political idiocies.
But to the story. As a potential gateway to financing, and the fact I know how to talk to them, our little development friends approached me about ideas for financing for a project of theirs - or rather a client of theirs. As described as a theoretical business proposition and the basic proposition they presented me - with too much irrelevant "we are the world" bullshit, but ..... okay we run into this out here in MENA when deals and opportunities are supported by Development People.
My irritation came when they described their financing proposal, which was frankly jaw dropingly stupid. 100% Debt financing, no equity in from the promoters, etc. We had a frankly unenlightening convo about the evils of bankers - they seem to have all learned some theory about banks being risk taking intermediaries and stopped thinking at this point, as if a bank should be bloody well rolling the dice with depositor money! Monovision. Yeah, sure, Venture people in MENA are not doing Venture as in Cali or even UK, but for the sake of a bloody fuck, be a bit fucking realistic, given a history of shitty returns, Emerging Markets PE & VC has to play a more cautious game in an enviro of non-transparency and limited understanding of real entrepreneurial risk taking (although in some ways not that waaay worse than continental Europe....).... Well my point here is, you want to play with private money, SPEND A FUCKING MOMENT THINKING ABOUT THE INCENTIVES ON THE OTHER SIDE OF THE FUCKING TABLE!
Mind you, our fine development people did a better job than the bloody Right Bolsheviks of the old US Imperial / Coalition Provisional Authority whose combination of incompetence, ideology and sheer ... graduate studies airy Talk Talk approach gave the US and frankly now the world and the region the utter shit that is Iraq today.
I am compelled (well desirous) of mentioning the idiocy of the other half of the conversation with our International Development Nicey Nicey people - my views on the problems of financing the Sacred Cow of Economic Development: Small & Medium Sized Enterprises.
I am pleased to say that my patience snapped here and I rightly shocked them in observing that [and I do quote] "I do not give a bloody fuck about your definitions and all this whanking on about should we set XX Euro millions as SME or whatever." (I did start more politely, but their studies man kept poking me about my views on proper stat ranges, and my frank opinion for the 'SME' problem in MENA, the Capitalisation means fuck all, its the characteristics (under a certain size).
There have been a million fucking "studies" on defining SME in whatever fucking terms. They're all, in this area, useless.
The problem they are talking about is access. ACCESS. A "Small" company by capital or turnover or whatever metric but whose real founders are whales or in Machreqi terms have much wasta (connections), they have no problem (relatively speaking). An excellent proposition from a nobody.... Well that is another matter. And not irrational nor above all necessarily corrupt in non-transparent environments. The problem for the non connected entrepreneurs is overcoming a fairly rational, deeply ingrained issue of confidence - the whole "why should I trust you with money..." The key business variables are not really "size" as such. The key business variable (business viability aside) is the trust that the entrepreneurs can generate.
There are no magic formulae for a development organisation to engage to address this - the sole real formula in my mind having the private sector financing experience in these markets is to act as a "first screen" - or rather fund an entity to act as a profit (subsidised) driven business development unit whose reporting requirements minimise exploitation by the "whales" and whose incentives in terms of business propositions taken to the private financial market are to support "winners." And the propositions must be realistically proposed. I mean, again, for the sake of a bloody fuck, 100% debt is fucking insane and wasted everyone's time. Realistic financial propositions iwth realistic ideas on engaging private capital, not magic "private investment is better than government investment right bolshevism...
I confess readily these are not easy, but if people in the I Dev World would start doing this, it would have saved me a precious few hours telling them I couldn't give a fuck about their bloody concerns about SMEs, but if they wanted work on that, they should work up on segmentation that had some relation to market realities and stop fuckiing pissing and moaning about SMEs - look at market segmentation by sectors, but whether the SME is 100% on the books, Semi on the books (i.e. hiding some revenues, employees, etc), or Off the Books - out in the wild world of the informal sector (and these can get quite "big"). And as well, fucking stop bleating on about "corporate governance and how it's like the Mahdi come to save SMEs, but start looking at the rational reasons why SMEs remain small in MENA (okay there are ... well less rational reasons as well, but in any economy there are lifestyle business people who want their little corner cafe (and their financing problems, well that's their fucking problem), and look at non-magical responses. Preaching is fine, the Abrahamic religions have a good several thousand years illustrating the efficaciousness in changing operational habits. I prefer Realism.
Realism means being market driven, but not a fucking virgin - a la the US CPA in Iraq - and looking hard at incentives (as well as being realistic about returns - sometime the people like EIB, the US OPIC, CDC give me the impression they want private returns for private money type activity... well that's fine but then you might as well be private. I don't know I am smart enough to define what is needed, but I can observe what is not working - at the same time I don't think throwing up one's hands or the We are the World innocence are right.
Posted by The Lounsbury at November 18, 2007 12:46 PM
Filed Under: Economic Development
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One of your bold tags didn't close properly.
Posted by: Frandroid Atreides at November 18, 2007 04:52 PM
not magic "private investment is better than government investment right bolshevism
Well, private investment is better than government investment.
Said tongue in cheek, but seriously too. Even though I see your point, I have a hard time conceiving that private investment is not better than government investment, and how government investment, especially in MENA, wouldn't be doomed to miserable failure.
Private momentum is what's needed. That money that could be wasted by third world romantics in touchy feely projects under the guise of pseudo-rational economic devel investment, could be instead invested in *education* (as in promotion, adverstising, networking, short training missions).
Such education projects would go along the line of education to would-be entrepreneurs for it takes more than just their willingness to take risk with their time, effort or employment opportunities. And education of would-be investors on actual opportunities and actual risks (vs. imagined ones and how MENA risk can be managed rationally). Then getting the word out about a few success stories out on well targetted media will generate a positive sheep effect.
To sum up: Reproduceable model, proof of concept, get the word out, momentum.
On an aside note. This entry of yours has convinced me that I really have to sit down with you and discuss. I'll be doing research on cross-border VC (WestEM or EMEM) in a few months, and I definitely don't want it to be academic whanking, I want it to be very applied (as in actually and directly useful in my parallel day-to-day non academic profesionnal activities). You look like a perfect source of information (and if you're interested and there's a potential exercise for it, a perfect guinea pig too), so let me know what would make you reserve a slot to discuss it somewhere sometime in second half 2008 and I'll take a plane and pay you a visit.
L, would there be a place where this sort of proposal would be acceptable? Are they simply taking an acceptable-for-EU plan and exporting it to an inappropriate place, or is it idiocy no matter where you pitch it?
Does anyone know of any examples of development investment that actually works in NA?
Posted by: Djuha at November 25, 2007 07:17 PM