US Enterprise Funds Stimulate Investment
Many post-communist states have met with challenges, as without a working market economy, private capital is scarce. Enter U.S. enterprise funds, providing loans to businesses to improve their standing, create jobs and return money to U.S. coffers—a win-win situation.
US Enterprise Funds
Enterprise funds operate as a venture capital firm, with an emphasis on lending to small and medium businesses (SMEs) in the countries where they exist. They have a limited lifetime—usually 10 to 15 years. Each fund also has a board of directors, with appointees from both U.S. businesses and local enterprises. For the most part, the funds work with great autonomy under USAID’s umbrella. There were political concerns regarding early enterprise funds, as some believed USAID lacked sufficient business know-how. However, it turned out that their involvement would be beneficial.
The funds also have a dual mandate. They are to “promote private sector development” while “generat[ing] financial returns for the U.S. government,” according to The Hill.
In post-communist Eastern Europe, the George H. Bush Administration first deployed enterprise funds to help former Soviet states rebuild. The first two such occurred in Hungary and Poland, with a total investment of $300 million. By investing in private companies, the Funds aimed to help develop these states’ free market. In Poland, for example, the Fund helped start a micro-lending company, Fundusz Mikro, that is still operational today and has loaned money to over 57,000 small and micro-business owners.
Congress established 10 enterprise funds across Europe in the 1990s, which generated almost $7 billion in private capital and “as much as $1.7 billion of net proceeds from successful investments,” according to the Center for Strategic and International Studies. They also helped create more than 300,000 jobs in the Eastern and Central European regions. For the United States, these funds contributed to stabilizing the region, fostering private investment and returned $200 million to the U.S. Treasury.
Today, only two enterprise funds remain. These emerged under the Obama Administration in Tunisia and Egypt, in 2012. Aiming to support post-Arab Spring markets, these funds granted annual cash infusions, with total funding capped at $100 million and $300 million, respectively, for the life of the programs.
In Tunisia, the Tunisian-American Enterprise Fund (TAEF) has seen success, investing in information and technology, construction and other sectors. One company, Net-Info, a school offering courses in 3D animation and gaming in the North African region, received funding from TAEF to open a campus in Tunisia’s capital, Tunis. Africa’s population is both young and growing, and youth make up 60% of the continent’s unemployed, so institutions like Net-Info that give marketable skills can reduce joblessness and instability. In sum, TAEF has supported around 5,000 jobs in Tunisia.
Meanwhile, the Egyptian-American Enterprise Fund (EAEF) has experienced similar success. EAEF has assisted 140,000 SMEs, like Fawry and Sarwa Capital, companies focusing on improving financial accessibility in a country where two-thirds of citizens are unbanked. Both companies have seen substantial growth, with Fawry adding more than 6 million customers since EAEF’s initial investment. Another financial services company, Flat6Labs Cairo, has given seed money to several small businesses, 31% of which women own. In 2017, reports determined that the fund directly generated 430 jobs in the country.
Enterprise funds, historically, have accomplished their mandate well. Congress has considered expanding certain enterprise funds. For example, an Enterprise Fund in Jordan emerged but never received funding. A logical step for Congress would be to continue this fund and consider establishing similar enterprises in other states where businesses have insufficient access to capital.
– Jonathan Helton