By David Abraham
The IFC and EMPEA recently hosted the Global Private Equity Conference in Washington, DC. The annual event draws in hundreds of professionals from both the institutional and investment sides of the private equity world and I was fortunate enough to attend. Everyone was focused on how how fund managers can best attract capital for business growth in developing countries in the wake of the financial crisis. For me, the best part of the event was interacting with the many attendees from sub-Saharan Africa to learn more about the ongoing investment trends on the continent. A venture capitalist from Nigeria even gave me a primer on “post-conflict investing” in Sierra Leone and Liberia.
One of the interesting conversations I had was with Graham Sinclair, the owner of SA based investment advisory firm SinCo. He has also just launched the Africa Sustainable Investment Forum (AfricaSIF) with 11 other Africa-based advisors. When I told him about the position I took in my last post on 3P regarding the World Bank loan to Eskom for a coal-fired power plant, he was dismayed. He not only pointed to the governance issues posed by the ANC (SA’s leading political party) involvement in the deal, but further stressed that, sometimes, South Africa obscures its advanced economic standing to shirk the ideals of sustainability. This in the face of preparing to host the World Cup – an exercise reserved for only a handful of nations.
By David Abraham
The World Bank voted on Thursday to extend a $3.75 billion loan to Eskom, the South African energy producer, to construct a new coal power plant. But the decision was not an easy one. A number of American and British politicians, as well as some environmental groups, objected to the deal, saying that it was inappropriate for the international body to fund a non-green project.
At the risk of sounding politically incorrect, I find the objections absurd for two reasons. The first is that there is a double standard being applied to emerging economies. We have the luxury to live in countries with 100% reliable electricity–most of it produced from sources not entirely friendly to the environment. What bothers me is the arrogance that the West applies to the developing world when considering clean energy production. Let’s figure out a way to make wind and solar viable in our countries first before dictating unreasonable standards to others.
By John Comberiate
Sustainability, green technology and community impact are all hot right now. It’s easy to promote these ideas in business and agree that they’re important. What’s not easy is actually implementing new business plans devoted to them. Taking it a step further, it’s even harder to train the next generation of entrepreneurs so that they have the knowledge, skills and direction to make it happen. At last week’s StartUp Scramble D.C. University Challenge, a frantic three day event for young entrepreneurs, this important need was successfully met.
The idea of the Scramble was to take a coalition of young business enthusiasts from DC area universities (American, Catholic, George Mason, Georgetown, Howard, George Washington and the University of Maryland), lock them in a building with consultants and advisers and churn out detailed plans for sustainable startups. The goal was to start with dreams and forge them through the difficult process of refining and retooling until a clear, elaborate and concise plan of action was produced.
By David Abraham
Al-Jazeera recently posted a video highlighting an investment surge in the tiny central African nation of Equatorial Guinea. The country is the third largest exporter of petroleum and gas–a fact that is not immediately obvious when looking at the quality of life for its 500,000 citizens. But with important infrastructure projects funded by China underway, conditions may be changing.
Chinese attention reaches well beyond Equatorial Guinea and the China Export-Import Bank is financing energy and transportation projects throughout the continent. An excellent 2008 World Bank report revealed that Nigeria, Angola, Sudan, and Ethiopia were the largest African recipients of funding from China. The Communist Regime’s intense interest in the region has stirred strong feelings for two reasons. First, China has shown that it will deal with governments with questionable (and I’m being generous) human rights records. Second, there is concern that the Chinese will bring a “New Colonialism” by not providing local laborers with fair wages or working conditions.
“Don’t use a cookie cutter approach when evaluating emerging economies,” warned Dr. Jahangir Boroumand, professor at the Smith School of Business at the University of Maryland. His sentiments were echoed by Dr. Paolo Prochno, also of Smith, during the kick-off event for the newly formed Emerging Markets Club at the school.
The task of defining an emerging market is tricky, if not outright impossible. Just consider the following examples. A few years ago, “emerging” countries were those that had taken on overwhelming levels of debt (think the Latin American crisis of the 1980s). But today, that framework would include Greece, Italy, the US, and Iceland. In years past, North-South capital flows dominated development discussions. However, that trend is quickly changing as nations like Brazil and China trade directly with one another – even using their own currencies for transactions! Formerly, industrialized countries entered developing markets for cheap labor and/or natural resources. But even this characterization is becoming outdated. Many companies now operate in emerging nations to gain knowledge. This was particularly true in Brazil when American automakers tried to lean how to build small cars efficiently and profitably. Finally, multi-nationals are now based in places well beyond North America and Western Europe employing thousands of people throughout the world - think Samsung and Tata.
By David Abraham
Blue Financial, a South African microfinance institution, just launched its Cashxpress product in Rwanda. The service is intended to help employed, yet low-income, individuals borrow money in emergency situations. According to the Blue Financial website, Cashexpress is unique since it will disburse unsecured loans of between 100 and 5,000 Rands ($13 to $677 USD) to existing customers who are faced with difficult financial situations, an opportunity that has thus far been the domain of loan sharks in the developing world. From press and company descriptions, Blue’s product operates similarly to payday loans common in the United States, a service that is often criticized because of the high interest payments charged to borrowers.
While microcredit continues to change lives in the developing world, it is worthwhile to consider these high interest rates. The published rate on an income generating loan from the Grameen Bank is 20%. By comparison, Americans pay around 15% on credit card debt. Of course, the proposition of lending money to people without credit histories or stable incomes involves considerable risk and microfinance companies must factor this into rate calculations. However, Kiva, the popular social giving site, recognizes that transaction costs account for a significant portion of expenses that microcredit institutions incur (Kiva, like Blue, does not post actual interest rates, an issue of transparency which may be a subject of a future post). As this field grows in size and popularity, it will be important to search for more efficient ways to deliver loans that ultimately decrease costs for customers.
David Abraham is an MBA candidate at the Robert H. Smith School of Business at the University of Maryland. He is a founder of the Emerging Markets Club at Smith which seeks to build a greater understanding of free-market opportunites in frontier markets.
Who Regulates the Regulators? Government Stepping in on Executive Compensation for the Financial Industry
By John Comberiate
As we observe the anniversary of the financial crisis, taxpayers and executives have their eyes equally fixed on the government’s plans to regulate executive compensation in the financial industry. Their decision, after such a catastrophic event with such far reaching consequences, will have to be just as complex in order to placate the opinions of all the parties involved.
So where do they begin?
In case you’ve been under a rock, you may want to catch up on what’s been happening in the financial industry for the past two years. Part of the government’s response to the financial collapse was creation of the role of ‘Special Master for Compensation’ (aka, the “Pay Czar”) and appointment of Kenneth Feinberg. Congress passed a law saying that the Pay Czar will determine individual compensation for the top 25 individuals in the seven TARP companies, design compensation structures for individuals twenty six through one hundred and gives him the right to clawback, or recoup, compensation dolled out in the past. Feinberg’s team set to work and has now put together the executive compensation totals for the top 25 individuals and is working on the compensation plans for the top 26 through 100.
How did they do it?
By John Comberiate
An up and coming low impact packaging idea comes from the British company “Harmless“. Everyone’s received a magazine covered in a plastic bag in the mail at some point in their lives. Everyone has shipped a delicately packed box with a fragile treasure inside meant for a close friend or relative. So we’re all familiar with packing materials as well as the waste that goes along with disposing of them once they’ve completed their useful life. Harmless is making that waste a little more eco-friendly.
Harmless has several options that have the ability to accommodate packing needs but the most impressive is the Harmless-Dissolve. Similar to any magazine wrapping you’ve received in the past, the Harmless-Dissolve protects the magazine from knicks, scratches and tears from point of origin to your door. Different though, is how you get rid of it; you just put it in water. The Creative Review, for examples, is shipping its magazine out this month in Harmless-Dissolve and even has demonstrational pictures of it in action.
By Julie Lloyd
Bo Ekman, founder and chairman of the Tallberg Foundation, made a rather jarring statement at this afternoon’s Global Corporate Citizenship Conference sponsored by the US Chamber’s Business Civic Leadership Center:
Much of what we consider CSR today is a toothless tiger.
He was referring, of course, to the one-off engagements or donations often made by corporations in the name of social responsibility. But this type of corporate philanthropy falls short–both in impact, and in benefits to the company–when stacked up against deeper, more meaningful partnerships that are embedded into its core values.
In this day and age, it’s no longer necessary to persuade corporations to undertake CSR–it’s simply a matter of identifying the most appropriate opportunities. That being said, here are some suggestions echoed often throughout today’s sessions:
By John Comberiate
In today’s changing technological landscape, Shannon Herbert asks us, how do companies communicate their Social Change? In her work at National Geographic as VP Integrated Marketing, she has found the answer in being a storyteller for their corporate mission “To inspire people to care about the planet”. This is accomplished through four core steps: Have a Story, Partnerships, Inspiring and Engaging your Customers, and Evaluating your Results.
Have a Story
By John Comberiate
At the Leadership for a Better World – Creating Social Value through Innovation Conference many speakers discussed the ideas around Social Entrepreneurship, how to communicate Social Change, and how large companies need to adapt to survive in a modern business environment. Often lost in this discussion is the low level view of the steps it takes to make this happen. Seth Goldman shared what this path looks like and the challenge of the decisions along the way.
By Deepa Janakiraman
Seth Goldman, a social entrepreneur based out of Bethesda MD, kicked off the Center for Social Value Creation Forum at Smith School of Business with the right spirit.
Goldman, after his MBA from Yale, worked at Calvert group for couple of years. Calvert group is a socially responsible investment company that invests clients’ money in companies that add social value to their return. At Calvert, Goldman realized his passion for being a socially responsible entrepreneur and decided to pursue his dream.
He called his professor at Yale to discuss his business idea making “less sweet” beverages. Together, they came up with a concept of “Honest Tea”. Seth mentioned in his speech today that at that time he thought “Tea” was the most important part of the name and realized later that the “Honest” part is what’s still keeping the business flourishing. The social value he and his partner see in their product is the production and distribution of natural beverages and the preservation of the health aspects of tea during the bottling process.
Goldman went on to describe the years it took to build distribution channels for his product, culminating in a partnership with Coca Cola.
They key takeaways from the morning? – Start by doing only things that resonate with you, pay attention to honesty and transparency in business relationships and don’t be afraid to take risks,. His speech inspired the crowd to do something better.
Deepa Janakiraman is an MBA student at Robert H. Smith School and works at Booz Allen Hamilton as an associate. An avid traveler and photographer and writes travel blogs at www.deeparaman.com
By: Scott Shuffield
The global warming debate is over. Now the argument moves to solving the crisis of climate change. Though often referred to in the context of “global warming,” the issues of climate change don’t just involve “warming” around the world but rather a general instability that could lead to innumerable negative externalities.
During the Leadership for a Better World forum hosted by the Center for Social Value Creation, Thomas Schelling, Nobel Laureate and economist who helped shape the Marshall Plan, spoke on the institutions needed to cope with climate change.
First off, a little background information from his talk:
1. “Developing” countries will be hurt the most by climate change.
2. The cost of food will go up and the poorer countries will suffer more than richer countries.
3. Agriculture makes up a large part of many developing countries’ economies.
4. Developed countries cannot solve the problem of climate change without the help of developing countries.
After outlining these few points, Schelling presented his ideas on bringing a “Marshall Plan” to climate change. He insisted that the developing and the developed countries (like China and the U.S.) should not communicate directly, but through an intermediary. Affairs between the two countries are already so muddy that a mediator is a necessity. The mediator could be an existing institution like the World Bank, but the issue is so large, that a new group may need to be created to serve as the climate change negotiator.
By John Comberiate
Speaking at the Leadership for a Better World – Creating Social Value through Innovation Conference, Paul C. Light set out to define what it is to be a Social Entrepreneur. Lack of clarity in the term often creates conflict between groups that feel they have been promoting social values throughout their existence and others who see it in the narrow context of treating a problem instead of solving it. Paul defines it as “Innovative activity designed to solve an intractable problem” and has come to this definition by researching myths around the Entrepreneur, the Idea, the Opportunity and the Organization.
By John Comberiate
As mentioned by Scott Shuffield this morning, during the Leadership for a Better World, Creating Social Value through Innovation Conference at the Ronald Reagan building in Washington, DC, Rosabeth Moss Kanter spoke about the ideas behind her book, SocialCorp. The book focuses on what is needed for large companies to remain competitive in a global and rapidly changing business environment.
Start with a Sense of Purpose as well as a Business Strategy
Anyone who has seen the 1999 classic Office Space knows what it is like to have a company mission statement. Large companies need a concise focus in order to build a Business Strategy that will generate profits and be competitive. Rosabeth spoke on how large companies need to take the next step, expanding on that idea to include a sense of purpose and value to guide what they believe and using it to create your business strategy.
Creating a new kind of Conversation with Employees
In order for large companies to adapt with the changing business environment, Rosabeth says they need to start a new type of conversation with their employees. She quoted Sam Palmisano from IBM saying that “Business is the last Monarchy”. At IBM, he took steps to break through this by setting up a program that invited their workforce to converse about what they liked about their mission, Innovation that matters, and what change they wanted see. The employees overwhelmingly responded, and the culmination of their voice lead to the addition of ‘for our company and the world’ to their mission, showing how the employees connect to making a difference in the global environment.