Attracting Local and Foreign Investments (Part VI)
In last week's article we noted that empowering our people to invest in their homeland is the most powerful tool that we can use to foster the prosperity of our people and their economic dignity – and that will be one of the greatest areas of focus of the Dominica Freedom Party (DFP).
Investment decisions are about weighing the likelihood of making a return (profit) against the risk of losing. But the fact is that many people are risk adverse, while many others are not sufficiently aware of opportunities to invest or do not know how to assess the potential risks and returns on an investment. Some persons have good ideas but need help to take those ideas forward. Some persons make a good start, but they could benefit from advice, technical assistance or additional investments to enhance business productivity.
In a latter article we will address how business opportunities can come about and what are some of the broad potential areas where our country can enhance our international competitive advantage. Below, we will focus on the other huge hindrance to investment – access to financing.
The use of personal savings is the most rudimentary source for financing investments. Importantly, we have to instil in our people – a culture of savings as small as they may be. But the average saving of Dominicans is small and so we must also learn how to pull our savings together to invest. The savings culture and the "working together culture" is one that the DFP will work to instil in our people through various strategies that will include public relations campaigns and the establishment of savings and investments mechanisms to better facilitate our people.
Borrowing from commercial banks is one other source to finance investments, but there are sever limitations to this. It is not easy to get a commercial bank loan for investment purposes given all the requirements that may include - collateral, a job that can independently repay the loan, a track record in business and a good project idea. Commercial banks do not go after risky business and that is why they tend to focus on lending to, businesses engaged in commerce, businesses that are already successfully operating and on lending for personal consumption. Further, commercial bank interest rates can be high.
Development banks such as the Agricultural Industrial and Development Bank (AID Bank) tend to focus lending on areas that commercial banks are reluctant to engage in due to high risk, including agriculture, agro-processing, other manufacturing activities and hotel construction. Their efforts can help overcome some of the difficulties associated with commercial bank financing. For instance, interest rates are often subsidized. Development banks often seek to provide close supervision to projects they fund and where necessary they provide technical assistance - areas that commercial banks are not geared to do. But by nature of the focus of their activity, development banks can't be as profitable as commercial banks. Hence, through appropriate strategies, governments need to make adequate allowance for the higher risk that they take. In addition to securing adequate resources for on-lending to enterprises, a DFP government will therefore ensure that the AID Bank operates on such sound development banking principles that will encompass: proper project selection criteria; collaterals requirement; project supervision; provision of technical assistance, business advisory and counselling services; and attention to other strategies for improving enterprises likelihood of success including, accessing adequate working capital, marketing and transportation.
But many businesses fail because they are too highly indebted to banks. That is why a major focus of a DFP government will be to expand the sources of capital that enterprises can utilize. Given that venture capital investments have been found to be very effective in other parts of the world at simulating innovation and job-growth, a DFP government will pay much attention to putting in place an adequate "venture capital eco-system". This essentially will involve putting institutional arrangements in place to connect venture capital sources to good enterprises that are ready to receive venture capital investments. These institutional arrangements must allow for the deliberate management of the process so that potential beneficiary enterprises could be adequately prepared by drawing on inputs of other stakeholders such as those providing technical assistance and business advisory services. Potential venture capital sources could include a venture capital fund invested in by Dominicans living abroad, a fund capitalized from the public purse, "angel investors", and venture capitalist.
Moreover, export-financing is a useful tool to help encourage and sustain local investments. But more on that in next week's article. We will also address a few other areas for encouraging our people to invest in their own country. We strongly encourage all political parties to embrace encouraging our people to invest as a mantra for improving their prosperity and economic dignity. However, the Skerrit-led administration does not have the credibility to lead Dominica anywhere. I certainly do not encourage anyone to trust them with their money or their personal business ideas!
Dominica Freedom Party