Kingston as financial sector innovator
Private equity finance can lead to increased employment, tax revenue, competitiveness, and economic growth. However, despite its prevalence in other parts of the world, until quite recently, it has been a rarity in Jamaica and the rest of the Caribbean.
Last week, Sagicor announced a new partnership with Small Enterprise Assistance Funds (SEAF) to create the SEAF Caribbean Growth Equity Fund to provide a new channel for local and regional investors to diversify their portfolios.
These portfolios include judicious investments that unlock high growth for target companies throughout Caricom. The headquarters for the fund will be in Kingston and the fund manager is also Jamaican.
The Development Bank of Jamaica has played a catalytic role in preparing the way for this new asset class and it welcomed this initiative as the passing of the baton to the private sector.
Finance Minister Dr Nigel Clarke made the point that the advent of equity finance is made possible by the strong macroeconomic stability that Jamaica now enjoys: low inflation and interest rates; more foreign exchange, and falling public debt. Firms now have an enabling business environment not seen for decades.
It is possible to plan new investments and consider expanding beyond Jamaica’s borders. As the public debt is reduced, the amount of private capital absorbed by the Government shrinks steadily and the banks, insurance companies and pension funds have increasingly more money to invest in private firms. Recent policy reforms have made it easier for these institutions to deploy the increased liquidity.
This is good news for firms that want to grow, since finance is cheaper and more available. However, there is a group of firms with high growth potential that is being left out. They require capital to acquire new technology, modernise management systems, and launch modern marketing campaigns.
Their cash flow, though, is insufficient to service large loans, they do not have enough collateral, and they need expert support to design the details of their expansion plans and implement them.
Minister Clarke has pointed out that in some cases, firms opt for equity finance if they are not ready to permit dissemination of their business model or a unique technology solution. This gap in the financial sector must be filled if Jamaica and other Caribbean countries are to escape the low growth trap and achieve their potential.
SEAF brings to the table three decades of successfully managing equity funds in many emerging markets around the globe. It has made hundreds of investments and carried them through the growth cycle to maturity, at which point it has sold its shares in the firms.
The result has been hundreds of stronger firms, scores of very satisfied investors and countries that now have a highly developed local market for equity finance, more competitive firms, more jobs, higher tax revenue, and faster economic growth.
Sagicor is the anchor investor in the US$100-million fund. The Jamaican investors are complemented by their counterparts from the Trinidad and Tobago financial sector. The fact that this initiative will have Kingston as its base is a clear reflection of the fundamental improvement in Jamaica’s economic potential. It also revives ambitions for this city to play a leadership role in the regional financial sector.