Climbing out of the Aid Trap

Although I would probably disagree with Glenn Hubbard about a lot of things, I am very eager to read his new book questioning the efficacy of past international aid initiatives.

The simple truth is that billions have been spent on aid, and billions are still left in poverty. Something clearly isn’t working. I understand that Hubbard looks at the post WWII Marshall Plan for inspiration on what could be done in the 21st century to address global poverty. Interesting idea.

Here’s a great quote talking about why microfinance isn’t enough. I’ll pre-empt the quote to say that I agree. Microfinance is great in certain instances, the rural poor for example, to help people on the path to economic development. But microfinance doesn’t really help SMBs and there is a real gap in the market there. Often SMBs are too big for microfinance, but too small for a regular bank loan, so they’re stuck. Happily, this gap seems to be filling in in many countries

Microfinance can be a catalyst for entrepreneurship up to a certain stage of business development, but the businesses launched through microfinance need to develop into full-fledged small businesses if they are to promote greater economic growth. Small and medium-sized businesses are the source of growth in all countries. Eighty percent of China’s employment, for example, is in small business — not in microfinance.

The barriers to growing past micro-entrepreneurship are formidable. Starting a formally-recognized business can require months of waiting, and paying enormous fees — including bribes — as the Doing Business rankings show. An example we use in the book is Mozambique, where starting a business requires forms 12 government agencies; you also have to pay bribes to each of the 12 government employees who stamp your documents. When you have 12 stamps, you can — at last — run your business without fear of being shut down. Similar hurdles in other countries mean that micro-entrepreneurs have a very difficult time becoming a political or economic force strong enough to challenge the status quo.

The bright spot is that micro-lenders are increasingly expanding their loan programs to serve not only individuals, but also established small and medium-sized businesses. Our proposal includes provisions for supporting existing small and medium-sized businesses through microfinance institutions.

Climbing out of the Aid Trap

Global warming money for Africa... great idea.. in concept....

So here's the jist of the deal:

Experts say Africa contributes little to the pollution blamed for warming, but is likely to be hit hardest by the droughts, floods, heatwaves and rising sea levels forecast if climate change is not checked.

The draft resolution, which must still be approved by the 10 leaders, called for rich countries to pay $67 billion annually to counter the impact of global warming in Africa.

Kinda makes sense, doesn't it? Africa contributed least to global warming yet they might get hit hardest, so they want something for their troubles.

Sure, who could argue that it isn’t only fair? In concept anyway….

Trying to figure out how this would be deployed in practice makes my head hurt (or maybe my head hurts from the other work I should be doing, instead of goofing off and reading the news off the Internet). As I've said here a few times, the world is not short of cash for emerging countries. Between development banks, organizations and thoughtful individuals, there is actually a lot of cash floating around.

The problem is, how do you reasonably deploy and track that cash? Therein lies the rub. As someone who spends time on issues such as this, I can say there is far more cash than deployment models out there.

I hope this global warming reimbursement idea comes with some deployment and monitoring ideas. If so, it will have a higher probability of success.

Africa wants $67 bln a year in global warming funds | U.S. | Reuters

Venture capital in America: The brightest and the rest | The Economist

Few thoughts here based on the Economist story:

Is it really “Too much money has been chasing too few great start-ups” as written in the subhead or is the problem as indicated further down the story“…much of the money has ended up in me-too companies that will not become the shining stars venture funds so badly need. All that cash has also inflated valuations of fledgling businesses, making it harder for VC funds to turn a profit on them.”

To modify the sub-head, I’m inclined to think that it is too much money chasing the same types of companies; everyone simultaneously going after Web 2.0, cleantech or whatever is sexy at the time. Potentially great companies that are not a flavor-du-jour are left behind while Paris Hilton companies (trendy but vapid) are actively sought after. (Is she still trendy… I’m so out of touch!)

Also, this is focused on the US. I think there are great VC opportunities abroad. The challenge here (as highlighted before) isn’t the lack of money or the lack of good business ideas, it is the lack of highly experienced VCs who can play the mentoring role to help local entrepreneur with great technologies build great companies.


Venture capital in America: The brightest and the rest | The Economist

Working on my new investment strategy

So over the past couple of months/years, my personal finances have become a bit of a mess. I had too many accounts with too many brokers and it was too hard to tell what was going on. So some accounts got super-whacked by the recession and some got brutally-whacked. I wasn’t sure which got whacked the hardest and why so over the past little while I’ve been consolidating all the accounts into one place, so I can get a nice overview of what is going on.

I got phase 1 completed a few weeks back and now have a single view on our various retirement and retail accounts (well, sorta, no sense in going into the gory details.)

Now, what to do with what little cash remains?

The accounts are currently filled with a variety of funds but I get the sense there is a lot of overlap here. Different funds, probably covering the same parts of the market, exist in different accounts; I’m going to have to spend some time untangling and figuring out which are the funds to keep and which I should jettison. Diversity is still your friend, and I think I have a lot of redundancy.

I’ve already done a couple of moves. In one account (Roth IRA) I loaded up on a TIPS fund. Yes, I am very worried about inflation and since that account didn’t have any bonds in it, I took the TIPS mutual fund route. My wife and I have a Roth each so I don’t mind sacrificing growth on one, if I think it is a little less risky. Right now, a TIPS mutual fund sounds like the right kind of risk mitigation.

In the retail account, I went back to an old friend, EWZ (Brazil ETF.) I made pretty good money off if this ETF over the past 5-6 years. Last year I fell asleep at the wheel and got totally spanked in Oct when this ETF fell like a ton of bricks (BRICs?)

Anyway it seems to be coming back and while I’ve missed some of the early upside, there may be more to come (I hope!) I’ve always liked Brazil. It has a solid financial sector, good exposure to commodities but still pretty diversified with a strong manufacturing base as well.

In the retail account I also bought into a California Municipal Bond fund. Yes, I know the state’s finances suck but I’m counting on it not defaulting. The yield may go up on the state’s munis so that may be nice plus I’m looking for a little tax protection.

I’ll let you know as to my other moves. Basically in my other accounts (IRA, Roth IRA) I’ve got a bunch of large-cap funds, which I need to diversify away from, and a REIT, which I may keep, I’m not sure yet.

C-BAM: Mentoring Canadian start-ups, Silicon Valley-style

I’ve written here and elsewhere that a main problem with the start-up communities in different parts of the world (both developed and emerging) isn’t the lack of capital, it is the lack of mentoring. While it may seem counter-intuitive in this age of “credit crisis”, the world is actually flush with capital opportunities if you have the right business plan.

Aye, there’s the rub, coming up with a business plan that investors will feel comfortable with. A lot of the times you come across great ideas, interesting technologies but weak companies and inexperienced (although usually very enthusiastic) management teams.

This is where mentoring comes in. An experienced mentor can help a start-up get its business plan in order and can provide an inexperienced/enthusiastic management team with the sage advice and coaching that will calm a rattled investors’ nerves.

Enter C-BAM!

C-BAM stands for Canada-Bay Area Mentoring (goofy name I know, it was the best I could come up with at the time) and the goal is to provide some Silicon Valley style advice to promising start-ups up in Canada.

The program is exciting to me because it uses technology to bring business mentoring to a whole new level. Although this is not a Cisco event, we used Cisco’s Telepresense (TP) to link up mentors in the Bay Area and start-ups in Canada (in our first instance, in Ottawa.) The start-ups pitched their companies via TP and got real-time feedback from a super group of experienced Canadian Bay Area-based executives and VCs.

(If you think there aren’t a lot of fantastically talented Canadian executives and VCs in the Bay Area, I challenge you to come down here, pick up a rock, throw it and try not to hit one. It can’t be done, I’ve tried.)

We had the first C-BAM last week and I think (hope) we were able to provide some real value to the participating start-ups. We looked at start-ups in the mobile, video conferencing and semiconductor optimization spaces. I have to say the companies were far more sophisticated than I had anticipated, so the discussions happened at a really advanced level.

We still have a few kinks to work out in the overall format but we’re continuing to plan future events, so I’m sure C-BAM will get better in each iteration.

If you can't bring Silicon Valley to Canada, bring Canada to Silicon Valley!

Through a series of “bootcamps”, the Canadian Trade Commissions in the US are helping provide guidance to Canadian start-ups on how to pitch and compete is a market as demanding as the US.

Select start-ups event get to move down into Silicon Valley for a while to establish operations and build a presence down here.

I’ve heard this process has taken some heat up in Canada because some claim this program is actually assisting the “brain drain” and creating incentives for start-ups to move out of Canada.

Rubbish! This is actually a very savvy move. What goes on in Silicon Valley cannot really be replicated elsewhere. Many programs around the world have tried, and almost all (if not all) have failed.

This program by the Trade Commissions is far more reasoned. Instead of spending all sorts of time and money attempted to re-create Silicon Valley someplace else, why not bring companies down here and let them learn from the original incarnation?

Canadian tech start-ups need access to the Valley’s ecosystem. It is not just access to capital, but access to talent, mentorship, new ideas and to customers. Companies, with one foot in Silicon Valley and one foot in Canada, are the best conduits through which some of the culture of innovation that exists down here can begin to filter north.

The local Trade Commissions realized this and through this “bootcamp” process have come up with a very creative initiative.

Will some companies move their HQs down here? Sure, probably. But they’ll also keep some functions back up in Canada and thereby create a great platform for SV/Canada exchanges.

And for the other companies that only stay down here for a short while and then head back, they’ll be newly armed with professional and commercial contacts that will help them grow their businesses.

Access to Silicon Valley means access to capital, expertise, and customers. The Trade Commissions are allowing Canadian start-ups to benefit from this access. Well done!


Canadian Technology Accelerator now open in Silicon Valley

Canada slipping in innovation

I’ve decried the lack of innovation in Canada before and while I (admittedly) don’t know the details of this announcement, it sends the wrong signal to the world. While most other countries are looking for ways to increase their national R&D capabilities, Canada should not be cutting its own. Not now, not in a crisis where, on the other side, innovation will be a premium.

For too long we’ve lived beyond our means financially and environmentally. If this economic crisis results in some sort (however small) of realignment of our priorities and our expenditures, we will need innovative thinking to help shape the new order.

I’ve seen Canada slip over the past few years in almost every global index of innovation. As someone who spends a great deal of time thinking about how to invest corporate funds in different countries, I can honestly say that a country’s capacity to do research and innovation is a huge criteria that impacts a decision.

For too long, it seems that Canada doesn’t really care about innovation. Now it seems that it cares even less.

Earnings could throw wrench in U.S. stock rally

Great headline.... those dang earnings are sssssooooo darn inconvenient.


Earnings could throw wrench in U.S. stock rally

Investment in addition to aid

I’m not sure I agree with much of this WSJ article, but hidden within this anti-IDB opinion is I think a valuable point, that creating an environment to attract investment, not just aid, is key for a country’s development.

Those developing countries that are the most attractive for investment are those with a stable local market, an educated population, and those that facilitate a way to both protect and safely deploy capital.

Developing countries (especially those that don’t happen to be China or India) need to demonstrate to international investors that the government is on their side when it comes to protecting capital.

People and institutions that put money in emerging markets are not risk-takers, they are in fact very risk-averse (or at least, the smart ones are.) So if these risk-averse investors find a developing country where they see a reasonably safe way to deploy and grow their capital---allowing them to put money in and take it out, to find and invest in promising enterprises, to work with trustworthy local partners—then the country will not only benefit from the money that comes in, but also from the talent and know-how that often accompanies these types of investment.



Latin America Needs Economic Liberalization and Property Rights, Not Foreign Aid - WSJ.com

A Checklist for Everyday Investing

Simple advice from Columbia GSB

Public Offering : Post : A+Checklist+for+Everyday+Investing

Canada's old economy vs new economy

Old Economy:
Canada's oil bust | A sticky ending for the tar sands | The Economist

New Economy:
Better Place to create electric car infrastructure in Canada

Oil, of course will come back... this price drop is temporary and as we work through this recession demand and prices will rise; and there will probably be more EV company flame-outs than huge sucesses (although Better Place looks promising).

Don't get me wrong, I have no illusions that Canada's economy will totally evolve from a resource-based one to an R&D-based one (although that would be nice.) But any investment the country makes in bits and bytes is more sustainable, more forward thinking and is more in keeping with developing a 21st century economy than any investment in rocks and trees.

Canada didn't invest, so now it must pay

Sadly, Canada didn't use the recent good times in commodities to invest in other industries and further diversify its economy. The country remained stuck in its rut of relying on exporting rocks and trees for economic growth. Well, with the global slow-down happening, I'm afraid that party is over (or at least feeling super gross with a wicked hangover).

Canada could have taken its surpluses, its stronger currency and its commodities revenues to make some strategic investments. But it passed on that opportunity and now maybe future opportunities will pass on Canada.

ViewsWire

Forget growth, forget inflation. The main concern...???

...plain old stability!

I remember the days of "don't worry, it'll be a mild recession" talk of a few months back. Now we're looking down the wrong end of a full on financial crisis.

I'm glad some people still have a "don't worry be happy now is the time to buy attitude" but I remain unconvinced. I thought that a few weeks ago and now feel duly chastened.

I'm not panicking or doing anything rash.

But I'm not happy either.

What Microloans Miss: Financial Page: The New Yorker

The problem is a dearth not just of lenders but also of people willing to buy an ownership stake in companies, like the angel investors and venture capitalists that American entrepreneurs often rely on.

This has been a theme in some of the recent literature on development, that a more VC approach needs to be taken to promote the founding and expanding of SMBs in emerging countries.

The relationship between lender and SMB is transactional, with the lender only interested in getting back the principle plus interest.

With interests aligned around the success of an enterprise, however, a unique symbiotic relationship forms between owner and manager (when the process works well.) This encourages sharing of resources, contacts and business ideas.


What Microloans Miss: Financial Page: The New Yorker

Palestinians pin biz hopes on high-tech industry - Yahoo! News

The question of the Middle East is obviously a very complex one, but I have to think that economic development that provides jobs and financial security has to be a good thing. It looks like a number of innovators in both Israel and Palestine agree and are putting money and expertise to help build an indigenous Palestinian IT industry.

Palestinian information technology is still in its infancy with just two dozen software houses, a few thousand engineers and $15 million in exports a year.

I have to admit, these numbers surprised me. I didn't think the Palestinian IT industry was even this big. It looks like a very positive development.


Palestinians pin biz hopes on high-tech industry - Yahoo! News

Retire on Dilbert

Just read Dilbert. It is so simple it is genius, even I get it. As relevant now as it was two years ago.

Dilbert's 9-point financial plan worthy of economics Nobel - MarketWatch

An Alarm Is Blaring: Time to Buy - New York Times

This strikes me as an articulation of the "buy low, sell high" mantra... and right now things seem to be low.

An Alarm Is Blaring: Time to Buy - New York Times

People want large cap exposure...

And I agree. They're pushing XLG on TheStreet.com.

Me? I'm in VV.

The look pretty similar to me but VV has an expense ratio of only 0.07% vs. XLG's 0.2%. Am I missing something?

Canadians: Think Globally, Act Locally

I've been reading a lot recently about how culture and general timidity have prevented leading Canadian companies from expanding globally.

The flip-side seems to be a lack of Canadians willing to invest locally.

It seems VC money is flowing in Canada, but it is from foreign sources. Now, I have no problems with the global flow of capital, in fact, I actively support that. A country such as Canada should be welcoming of VC money from the US and elsewhere. But here's the money quote:

So while the news of VC investments is good, "we need strong Canadian investors if we want strong Canadian companies," says Rick Nathan, president, CVCA and managing director of Kensington Capital Partners.

So true.

Buffett: Bank woes are poetic justice | U.S. | Reuters

'nuff said.

Buffett: Bank woes are poetic justice | U.S. | Reuters