Gov’t, IDB share venture capital priority as Clarke leads bank’s board | Business

Amid copious praise for what has been described as Finance Minister Nigel Clarke’s astute handling of the financial affairs of Jamaica during his tenure so far, finance ministers and other members of the board of governors of the Inter-American Development Bank, IDB, on Monday elected the Jamaican representative to the chairmanship of the bank and its private-sector investment arm, the IDB Investment Corporation, or IDB Invest.

Clarke’s elevation to the helm of the multilateral financing institution comes on the heels of the IDB trumpeting what it says is a record US$1.3 billion of funding lined up for Caribbean countries this year on top of US$2.5 billion in ongoing projects, and the Jamaican government rolling out a $10 billion suite of business-boosting spending. This package includes the state taking equity stakes in small business to help them grow; and a venture capital shot in the arm for start-ups, seeded with $750 million from the IDB’s US$8.6 million or $1.3 billion financing for entrepreneurship in Jamaica.

President of the IDB Mauricio Claver-Carone, in his address to the bank’s governors at their annual meeting this week, was emphatic about the role that venture capital financing must play in COVID-19 pandemic economic recovery from the beefed-up finances earmarked for private-sector investment through IDB Invest, which he has dubbed IDB Invest 2.0.

“We are clear-eyed about the needs of the region. Some of our member countries have recovered their losses and, indeed, some sectors are booming. Latin America was the fastest-growing region in the world for venture capital in 2021, with a record-smashing US$20 billion flowing in,” Claver-Carone declared.

Making the case for even more venture capital flows to big businesses, but especially to micro, small and medium enterprises, MSMEs, the bank’s executive head said that following record business closures, job recovery has not kept pace with GDP gains, a fact that he pointed out is especially true for youth and women.

The Financial Gleaner was not able to ascertain the IDB’s total financing outlay for venture capital and equity investment, or the total envelope for Jamaica in the next five-year country strategy, as the overall programme for each beneficiary country is called. The new programme is scheduled to start this year. The document was slated for signed off at Monday’s annual meeting and no announcement has since been made about its details, which were worked out with the government during a visit to Jamaica by an IDB team led by Claver-Carone in December last year.

The equity and venture capital top-up announced by Clarke in his recent Budget presentation in Parliament, and the government’s stated intention of matching the multilateral’s funding for business development, display a shared priority by the IDB and the Government of Jamaica for start-up business financing. It is also in keeping with what Claver-Carone previously described as part of his upset with the IDB’s past approach to development assistance that, he argued, emphasised sovereign debt over private- sector loan and equity investment. This peeve fed into his decision in December not to renew the employment contract of Therese Turner-Jones, the Caribbean development economist who led the IDB’s Caribbean division that is run out of Jamaica.

Although the commitment to business incubation and private sector-led growth spans several administrations in both the Jamaican government and at the executive level of the multilateral agency that finances economic and social development initiatives in Latin America and the Caribbean, Clarke appears particularly gung-ho about the power and vital importance of early capital for micro and small businesses. This is to give them the leg-up needed to scale and expand into big, profitable enterprises that generate economic activity, create thousands of jobs, grow gross domestic product, GDP, and general prosperity for nations and people. It is a passion the corporate leader turned politician has been known to have harboured since before entering government.

“Through the pursuit of sustainable fiscal and monetary policies, we are entrenching stability that facilitates private sector-led investment and growth. To maximise on these possibilities and to also ensure that these opportunities are equitably available, we aim to commoditise capital, and in particular equity capital. We expect this to create an environment that is fertile for innovation, investment and value-added, risk-taking activities,” Clarke told the Financial Gleaner in comments from Washington this week.

The government’s $10 billion package includes $2 billion in private equity investment under the banner of the administration’s $60 billion SERVE (Social and Economic Recovery and Vaccine) programme, funded from a $33 billion, one-off dividend payment the government received from the central bank operations last year. The government business support is mainly routed through the Development Bank of Jamaica, DBJ.

The DBJ vehicles, which include a $6 billion credit guarantee programme, innovation grants to assist MSMEs develop new income streams and incorporate digital strategies in their operations, are complemented by government support for existing business accelerator labs of the Jamaica Business Development Centre and the Branson Centre, as well as the Rev-Up Caribbean tech incubator of Kingston Creative. Micro, small and medium businesses can also access seed grants of up to $7 million.

According to Clarke: “The main objective is to promote inclusive growth and productivity by fostering innovation in the private sector. The purpose is to jump-start economic growth by building an ecosystem that supports dynamic entrepreneurship and innovation in MSMEs. We are promoting innovation and productivity among established MSMEs with high growth potential; promote sustainable and inclusive growth in scalable start-ups; and creating a sustainable pipeline of entrepreneurs and high-growth potential start-ups. Entrepreneurship and innovation activities that tackle gender and climate issues will be targeted and implemented.”

The new IDB board chairman told the annual meeting in opening comments on Monday that although Jamaica was hard-hit by the COVID-19 pandemic, the economy had begun a “robust” recovery of jobs and economic activity.

“Jamaica looks forward to deepening our partnership with the IDB as we continue to recover and reform, and as we seek to position ourselves as an economy that is open and ready for private-sector investments that can catalyse sustainable and inclusive growth, even as we pursue public investments geared towards human capital, social and infrastructure development,” Clarke said.

He is expressing support for the IDB’s capital increase ambitions, describing the plan as a timely tool for economic reconstruction in the region.

“The COVID-19 pandemic eroded the hard-earned gains of several countries in the region. It also exacerbated pre-existing vulnerabilities and development challenges, such as high inequality, high poverty, high debt and low growth that existed throughout much of our region. As such, it is timely that there is rigorous discourse on the positioning of the IDB’s financial and institutional capacities to robustly respond to the varying economic and development challenges of borrowing member countries. Increasing the capital of the IDB to better support private sector-led recovery across the region could hardly come at a better time,” the Jamaican finance minister noted.

huntley.medley@gleanerjm.com