The Finance Minister, Larry Howai, said in his address at the Caribbean Centre for Money and Finance's Venture Capital Seminar that venture capital is one avenue through which the region can restore economic growth. This requires that we be innovative and move beyond the conventional economic expansion and stimulation.
He warned the Caribbean region still has some progress to make in this direction as we have been overly reliant on traditional debt and equity financing arrangements to finance commercial activity. Hence venture capital would be an invaluable and welcomed source of innovation financing.
He added, venture capitalists offer extremely valuable services to nascent companies to ensure they build and grow so providing a fertile breeding ground for knowledge transfer, strategic counsel, sound governance and application of cutting edge commercial best practices.
He concluded the willingness to undertake risk and fail also makes venture capital unique for our economic transformation. Further, that our solution requires us to step out of the strict venture capital regime and embrace additional structures including business incubators and angel financing, and at a different level of sophistication, private equity funds.
Minister Howai has focussed on one aspect of a national innovation system and, in particular, is ignoring the enormous constraints that have been placed on its implementation by the history of our plantation.
For example, the rents earned by exploiting our petroleum resources, the lucrative return on investments that the private sector can make by simply funding (via short-term debt and certain equity) virtually risk free the demands of the local and regional consumers, moreso through import-markup-sell and the lack of specialised skills.
Howai referred to the provision of a fertile breeding ground for knowledge transfer ignoring that to be innovative and globally competitive, we need to not only acquire and implement knowledge, but also to create knowledge.
At present we spend some 0.05 per cent of GDP on research and development (R&D) compared to 1-2 per cent by other successful economies. We have no proof-of-concept funding and, as Minister Howai concedes, no venture capital funding, all of which are needed for innovative growth.
These growth activities are high risk and our private sector prefers to provide the low-risk requirements of the population; the energy sector income allows our governments to provide high subsidies and transfers and projects; the last appears to be encouraging non-transparent competition among contractors leading possibly to state capture.
Howai suggests the establishment of business incubators, angel financing and even access to private equity funding. He has not expanded on who will fund these incubators, which angels/venture capitalists should take the risk when easy money is to be made in for example, importing cars or in real estate.
One answer is our government should give incentives; yet we see the failure of our private sector to develop globally competitive industries even though they were protected behind Caricom tariffs and the local negative listing and even to take up the challenge to go downstream at Pt Lisas.
The history of the economy points to the inability of the current private sector even with government involvement to diversify the economy. There is need to create an embryonic third economic sector in the encompassing context of a national innovation system.
The problem here: this takes vision, leadership and investment of our limited savings into activities that are risky and which could bear fruit in the longer term. This takes a government can convince the population that investing in the longer term is the only way to sustained prosperity.
Mary K King
via e-mail