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					   AGRICULTURE TRADE & INVESTMENT
  Complements in Economic Development


                Joyce Cacho
              International Consultant
Finance, Strategy, Food & Agribusiness Investment


              November 8, 2004
           Monterey, California, USA
PRESENTATION OUTLINE
I.    International investment trends
II.   Why focus on Small- & Medium-size
      enterprises?
III. Financing vehicles for SME‟s
IV. Capacity Building opportunities
V.    Conclusions


                     cachojas@aol.com   Page 2 of 32
PRESENTATION OUTLINE
I.    International investment trends
II.   Why focus on Small- & Medium-size
      enterprises?
III. Financing vehicles for SME‟s
IV. Capacity Building opportunities
V.    Conclusions


                     cachojas@aol.com   Page 3 of 32
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).


                                                   cachojas@aol.com   Page 4 of 32
FDI to Africa: 1980-2003
                                                      Developing countries               Africa        South America

                              260,000
                              240,000
                              220,000
   millions of U.S. dollars




                              200,000
                              180,000
                              160,000
                              140,000
                              120,000
                              100,000
                               80,000
                               60,000
                               40,000
                               20,000
                                    0
                                        1980

                                               1982

                                                        1984

                                                               1986

                                                                        1988

                                                                               1990

                                                                                      1992

                                                                                             1994

                                                                                                    1996

                                                                                                           1998

                                                                                                                  2000

                                                                                                                         2002
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).


                                                                      cachojas@aol.com                                   Page 5 of 32
FDI as a percentage of Gross Fixed Capital
Formation: 1980-2003
                       World            Developed countries                   Developing countries
           25


           20


           15
 percent




           10


            5


            0
                1980


                         1982


                                 1984


                                           1986


                                                      1988


                                                                1990


                                                                       1992


                                                                               1994


                                                                                      1996


                                                                                             1998


                                                                                                    2000


                                                                                                            2002
 Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).


                                                       cachojas@aol.com                                    Page 6 of 32
Africa FDI (Sub-Sahara + North Africa) as
percentage of Total: 1980-2003
                                              Other Africa                   North Africa
 90%
 80%
 70%
 60%
 50%
 40%
 30%
 20%
 10%
  0%
           1980

                      1982

                                1984

                                           1986

                                                     1988

                                                               1990

                                                                      1992

                                                                                1994

                                                                                       1996

                                                                                              1998

                                                                                                     2000

                                                                                                            2002
 Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).


                                                       cachojas@aol.com                                     Page 7 of 32
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.


                                                          cachojas@aol.com                                                       Page 8 of 32
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.


                                                          cachojas@aol.com                                                  Page 9 of 32
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.


                                                           cachojas@aol.com                                                     Page 10 of 32
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.


                                                           cachojas@aol.com                                                      Page 11 of 32
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.

                                                            cachojas@aol.com                                                        Page 12 of 32
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.


                                                          cachojas@aol.com                                                     Page 13 of 32
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.


                                                           cachojas@aol.com                                                Page 14 of 32
The “Primary” industries attract the least amount
of transaction „suitors‟.
                                                          MERGERS & ACQUISITIONS

                                                                 Primary        Manufacturing               Tertiary
                           800,000
                           700,000
                           600,000
     millions of dollars




                           500,000
                           400,000
                           300,000
                           200,000
                           100,000
                                0
                                     1987

                                            1988

                                                   1989

                                                          1990

                                                                  1991

                                                                         1992

                                                                                1993

                                                                                       1994

                                                                                              1995

                                                                                                     1996

                                                                                                               1997

                                                                                                                       1998

                                                                                                                              1999

                                                                                                                                     2000

                                                                                                                                               2001
 Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).


                                                                  cachojas@aol.com                                                          Page 15 of 32
…with Agriculture, Hunting, Forestry and Fishing
receiving the smaller share of Primary industry M&A.

                                                               MERGERS & ACQUISITIONS
                                                                Agriculture, hunting, forestry, and fishing
                           9,000                                Mining, quarrying and petroleum

                           8,000
                           7,000
     millions of dollars




                           6,000
                           5,000
                           4,000
                           3,000
                           2,000
                           1,000
                              0
                                   1987

                                          1988

                                                 1989

                                                        1990

                                                                1991

                                                                       1992

                                                                              1993

                                                                                     1994

                                                                                            1995

                                                                                                   1996

                                                                                                          1997

                                                                                                                 1998

                                                                                                                        1999

                                                                                                                               2000

                                                                                                                                         2001
 Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).


                                                                   cachojas@aol.com                                                   Page 16 of 32
Agri-based industries are attracting a declining
share of M&A among Manufacturing industries.
                                                        MERGERS & ACQUISITIONS
                             Other manufacturing                                       Rubber and plastic products
                             Motor vehicles and other transport equipment              Precision instruments
                             Non-metallic mineral products                             Publishing, printing, and reproduction of recorded media
                             Metal and metal products                                  Machinery and equipment
                             Electrical and electronic equipment                       Coke, petroleum and nuclear fuel
                             Food, beverages and tobacco                               Chemicals and chemical products
                             Wood and wood products                                    Textiles, clothing and leather
                         325,000
                         300,000
                         275,000
                         250,000
   millions of dollars




                         225,000
                         200,000
                         175,000
                         150,000
                         125,000
                         100,000
                          75,000
                          50,000
                          25,000
                               0
                                   1987


                                          1988


                                                 1989


                                                         1990


                                                                1991


                                                                         1992


                                                                                1993


                                                                                       1994


                                                                                               1995


                                                                                                       1996


                                                                                                               1997


                                                                                                                      1998


                                                                                                                              1999


                                                                                                                                      2000


                                                                                                                                              2001
 Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).


                                                                       cachojas@aol.com                                                 Page 17 of 32
Consistent Finance M&A over time  stronger capital
base for investing.
                                                           MERGERS & ACQUISITIONS
                                    Public administration and defence                             Other services
                                    Education                                                     Unknown
                                    Construction                                                  Health and social services
                                    Community, social and personal service activities             Electricity, gas, and water
                                    Trade                                                         Business services
                                    Transport, storage and communications                         Finance
                                    Hotels and restaurants
                          900,000
                          800,000
                          700,000
    millions of dollars




                          600,000
                          500,000
                          400,000
                          300,000
                          200,000
                          100,000
                               0
                                     1987


                                             1988


                                                    1989


                                                            1990


                                                                    1991


                                                                             1992


                                                                                    1993


                                                                                           1994


                                                                                                       1995


                                                                                                               1996


                                                                                                                       1997


                                                                                                                                1998


                                                                                                                                       1999


                                                                                                                                              2000


                                                                                                                                                     2001
 Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).


                                                                           cachojas@aol.com                                                   Page 18 of 32
PRESENTATION OUTLINE
I.    International investment trends
II.   Why focus on Small- & Medium-size
      enterprises?
III. Financing vehicles for SME‟s
IV. Capacity Building opportunities
V.    Conclusions


                     cachojas@aol.com   Page 19 of 32
Dominant farm characteristic: SMALLHOLDER

• From a macro-economic AND private
  sector perspective…‟small‟ 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.
                   cachojas@aol.com         Page 20 of 32
Dominant farm characteristic: SMALLHOLDER

• Investor appetite stronger for established
  businesses with a target market – domestic,
  regional or international…even 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.

                     cachojas@aol.com        Page 21 of 32
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
   – It‟s 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.

                             cachojas@aol.com                    Page 22 of 32
PRESENTATION OUTLINE
I.    International investment trends
II.   Why focus on Small- & Medium-size
      enterprises?
III. Financing vehicles for SME‟s
IV. Capacity Building opportunities
V.    Conclusions


                     cachojas@aol.com   Page 23 of 32
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
                   cachojas@aol.com        Page 24 of 32
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 <US$50K or
  >US$1M
• The SME sector lies somewhere in-
  between!

                   cachojas@aol.com      Page 25 of 32
Investment (venture) Funds

• A „new‟ opportunity via an „Investment Fund‟ for
  Kenya-owned SME‟s 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
  US$50K-500K zone.

                     cachojas@aol.com         Page 26 of 32
PRESENTATION OUTLINE
I.    International investment trends
II.   Why focus on Small- & Medium-size
      enterprises?
III. Financing vehicles for SME‟s
IV. Capacity Building opportunities
V.    Conclusions


                     cachojas@aol.com   Page 27 of 32
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
                      cachojas@aol.com       Page 28 of 32
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 SME‟s
• Annually, holds an International
  Entrepreneurship Conference in Kenya
• Opportunity to support strengthening business
  skills of entrepreneurs – continent wide!
• Contact: www.usiu.ac.ke/ceed

                    cachojas@aol.com        Page 29 of 32
PRESENTATION OUTLINE
I.    International investment trends
II.   Why focus on Small- & Medium-size
      enterprises?
III. Financing vehicles for SME‟s
IV. Capacity Building opportunities
V.    Conclusions


                     cachojas@aol.com   Page 30 of 32
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


                           cachojas@aol.com                   Page 31 of 32
    Thank You!
     Joyce Cacho, Ph.D.
       International Consultant
Finance, Strategy, Food & Agribusiness


    E-Mail: cachojas@aol.com

				
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