|
Proposal
Funding in the amount of $250,000 is sought to finance the
launching of Development Investors Inc. (DII), a new type of venture
capital enterprise having as its purpose the identification, design and implementation
of financially sound investment opportunities possessing high
development value. DII will seek these opportunities in carefully
selected countries in the developing world. DII will be guided by the
twin criteria of profitability and high developmental impact.
Ownership
The legal form
which DII will take, the jurisdiction in which organized,
and its capital structure will be determined after
due consideration of all relevant considerations and in consultation
with the party or parties providing the initial financing for the
enterprise. Beneficial ownership of DII will be allocated in the
following proportions:
49 % to the investors and 51 % to the organizing principals, Donald
Paradis, David Gordon, and Courtney Nelson. Other principals who
join as principals during the period of initial operations will be
allocated a percentage of ownership out of the 51 % earmarked for the
organizers.
Use
of Initial Capital
DII's initial
funds will be used in accordance with the preliminary
budget (Exhibit A) to establish an office in Washington, D.C., to
finance exploratory visits to selected developing countries, to identify
promising investment opportunities, and to carry agreed projects through
to the implementation stage. It is anticipated that initial efforts will
concentrate on the agribusiness field. Among
the regions presently under consideration are North and East Africa
(Egypt, Kenya, and
Somalia), the Caribbean (Jamaica and Barbados), and the Far East (the
Philippines, South Korea and Indonesia).
Individual
Project Funding
As project opportunities reach the implementation stage, they
will be developed as separate business entities, with the requisite
additional financing and essential technological and management expertise
being organized and provided by DII. The owners of DII will be given the
opportunity to participate in the provision of required financing
on a priority basis. The owners of DII will in any event acquire an
interest in each such business opportunity, by virtue of their ownership
in
DII.
Future
Funding of DII
It is
anticipated that by the end of the first year of operations, DII
will have acquired equity positions in one or more projects. However,
because of the inevitable time lag between the start-up of a given
project and the generation of dividend revenues, it will be
necessary for DII to raise additional capital. With a successful
performance record already established, DII will have ready access to
sources of finance interested in participating in DII's on-going
development investment
activities. Further
financing should thus be available on favorable
terms.
Background
DII proceeds on
the proven assumption that productive economic activity achieves its
most efficient and economic levels under private ownership. Developing
countries characteristically possess many attributes attractive to
private investors, such as low-cost labor and under-utilized natural
resources. Ideally, then, private enterprise should be playing a major
role in the economies of the developing world. Unfortunately, experience
is otherwise.
In practice,
except for the extractive industries and some services, such as banking,
investors have
typically preferred the climate of the already-developed countries. The
reasons for this are familiar; developed countries promise the security
of investment from political instability and freedom from the threat of
confiscation, better capital and real estate markets, and the ready
availability of skilled labor and experienced management.
In
particular,
the pronounced tendency in recent years for the oil-exporting states to
prefer developed country investments has severely disappointed the
poorer countries of Africa and elsewhere, and contributed to
a distinct slowing of the pace of worldwide development. This
is not said in criticism of those in the capital-surplus, oil-rich
states; as the guardians of the revenues derived from a wasting asset,
they would be remiss in discharging their obligations to future
generations if they took undue risks with their temporary surpluses.
The clear
conclusion, then, is that another technique must be found to overcome
the constraints to capital flow that presently leave developing
countries so severely disadvantaged. It is to this problem that
DII will address itself.
The
DII Strategy
DII believes that the obstacles to productive investment in the
developing world can be overcome through a judicious choice of projects
and their location, by taking maximum advantage of incentives offered by
host countries and the governments of developed nations as well, and by
associating experienced development specialists in the launching and
management of carefully selected projects in accordance with a carefully
planned strategy.
DII will
concentrate on investment opportunities that will optimize
the security as well as the profitability of the investment. They
will normally be in the agribusiness field or in labor-intensive industries
that have been accorded high priority by the governments of the
developing countries and are hence most eligible for government
protection and incentives. High risk-high profit ventures such as mineral
exploitation will not be pursued, in part because of the high risk
involved and in part because they do little to contribute directly to
the development process. Profit will be an indispensable measure of
success, but profit alone is an inadequate motivation for any of DII’s
organizers.
DII will
optimize security and profitability by the following strategy:
a. Seek
projects in areas actively promoted by host governments.
This will facilitate access to favorable local sources of finance
(development funds and finance institutions), tax incentives, research
and extension activities,
and other measures offering technical support.
b.
Spread risk by operating in several developing countries, but
only those which explicitly welcome foreign investors, such as Egypt,
Jamaica, Barbados, and Kenya, among others.
c. Organize
separate ownership arrangements for each project, with DII sharing
ownership with other sources of finance. Joint ventures will be
preferred in order to take maximum advantage of local knowledge and
talent.
d. Work closely
with government assistance programs where special
inducements for private investment are offered. Typical
U.S. programs include OPIC, for investment insurance; ExIm Bank, for
credit; and
the Generalized System of Preferences, which offers preferential
treatment to exports from selected countries, including Jamaica and
Barbados. Other tariff agreements offering important advantages are Canada's
BSP, the Lome II Convention, and CARICOM for the Caribbean region.
In the developing world, Egypt’s Private Investment Encouragement
Fund, the Philippines Industrial Guarantee and Loan Fund, and a major
agribusiness project in Jamaica that provides investors with technical
assistance, credit and feasibility studies may be cited.
The
Organizers
DII's
principal organizers have all lived and worked for many years in the
developing world, particularly in Africa and Asia. They bring to the
undertaking
- an
exceptional and wide-ranging experience in the developing world and
a profound knowledge of the development process;
- familiarity
with the working conditions in the developing states, and a lively
awareness of the local comparative advantages and disadvantages
impinging upon particular development investment projects;
- high-level
contacts in many of the countries in which DII will be active;
- a
broad range of professional acquaintances in major private financial
institutions and such international organizations as the World Bank
and the Ford Foundation;
- proven
and successful experience in business and financial management and
organization.
See
Exhibits B, C, and D for brief biographical sketches of Messrs. Paradis,
Gordon and Nelson.
Exhibit
A: First Year Budget
Organization
Expenses
$ 4,000
Office
Expense (Washington, D.C.)
Rent $
15,000
Furnishings
5,000
Equipment
5,000
Secretarial
Services
15,000
$ 40,000
40,000
Communications
4,500
Compensation
to Organizers
$250 per day for 100 days x 4 (est)
100,000
Services
of Technical Consultants
40,000
Travel
Airfares $
25,000
Per diem ($100
x 50 x 4) 20,000
$ 45,000
45,000
Contingency
16,500
$250,000
|
