The new face

of investment in the Pacific

Jemima Garrett

Sydney

Until the last few years if you were a busi nessperson in the Pacific looking for venture capital you had a hard road to hoe. There were no major venture capital providers in the region and if you visited those in Sydney or any other nearby centre you would probably be offered a deal which required a 100 percent per annum return on investment.

Not a very attractive prospect, especially if you were looking for venture capital over a period of five years or more. In many cases you would not be offered a deal at any price. The high rate of return asked in Australia and New Zealand is still a problem but there is now an alternative the SUSI 7 million Kula Fund announced by Chief Emeka Anyouku, the Secretary General of the Commonwealth when he visited the Pacific recently.

In fact, the Kula Fund has been up and running for 10 months and it is one of a crop of new venture capital providers established by development agencies working with the private sector. The difference with the Kula Fund is its vision for its future. Ashley Emberson-Bain, the regional manager of the Commonwealth Development Corporation, is the man overseeing the Kula Fund and he has nothing short of a breath-takingly ambitious plan for it.

He wants to have all his investment capital placed with in three years. Once the first Kula Fund is proving a suc cess he plans to go on and crack the Australian and New Zealand market by attracting superannuation funds and other big institutional investors to put their money into a second Kula Fund. This would be a major breakthrough. It would mean Pacific island business had come of age and that it had won the confidence of the most conservative ele ments of business in neighbouring developed countries.

At the moment those big funds have written-off the Pacific believing firstly, that the quality of the deal flow is not present (ie that they can not get the returns they want) and secondly, that the quantity of the deal flow is not there (that there are not enough investment opportunities to make the whole thing worth their while). It’s a similar story with the venture capital providers. The generally slow economic growth in the Pacific makes it unattractive and with little local knowledge it is hard for them to identify good

prospects. To top it off the cost of trips to supervise their investments (both in terms of airfares and accomodation and time lost from the office) makes these investments almost impossible.

That is where Emberson-Bain believes he has the advan tage - with local knowledge and the experience in finance in the Pacific. Still, he knows it will be a difficult task. To prove to outside institutions that the Pacific offers viable investment opportunities, the Kula Fund must be run along purely commercial lines and set a commercial rate of return on its investments. That rate is around 30 percent per annum but it is not daunting Emberson-Bain.

“We have a strong pipeline of investments and I must say it becomes stronger by the day,” Emberson-Bain told PIM. “I hope to have dispersed 46 percent of the fund by the end of the year,” he said. The first Kula Fund invest ment went into the very successful Fiji company. Pacific Green, which transforms coconut trees which are past their use-by date as coconut producers into sawn timber and fur niture.

The Kula Fund investment is helping Pacific Green to expand into architectural products and building supplies.

For businesses without the amazing growth necessary to return full commercial rates on venture capital invest ments, there are subsidised options such as the Brisbane based Pacific Islands Investment Fund (PIIF) operated by the World Bank’s International Finance Corporation (IFC) or the Pacific capital Investment Fund (PCIF) run by the CDC in Port Moresby.

Perhaps more interesting to businesses just starting out or ready to expand but not sure of the way to go about it, are services of the South Pacific Project Facility (SPPF) in Sydney. It offers help with everything from business plans and feasibility studies through to finance and training, at a fraction of the usual cost. What all these new breed of finance and advice services have in common is a philoso phy of self-reliance and an aversion to any business which is relying on preferential trade deals.

“We don’t want to invest in companies that are ... suc cessful commercially because they have some kind of trade preference or protection,” said Emberson-Bain. On compa nies using the SPARTECA trade preferences into Australia and New Zealand (such as many of Fiji’s garment manu facturers) Emberson-Bain is wary.

“We would look at those carefully because ultimately those preferences are not sustainable,” he said. The busi ness proposals that are winning support are in areas where the Pacific has a lasting competitive advantage - in tourism, any sort of fishing, fish processing or fishing sup port services and in environmentally-friendly logging or timber processing. Emberson-Bain has projects in most of those areas on his books and from a range of countries. With shrinking aid flows, the region is being forced to look at alternative sources of capital to finance its economic growth requirements.

“Our attitude is that the Kula Fund is part of an initia tive that will hopefully bring private sector capital into the Pacific,” said Emberson-Bain. ■