PIOJ Growth-Inducement Strategy - Planning Institute of Jamaica

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C ____________________ Jamaica Venture Capital Programme 58 1.0 Introduction The Government of Jamaica has undertaken to establish an institutional mechanism, the Jamaica Venture Capital Programme (JVCP), to provide an appropriate legal, fiscal and regulatory framework for the development of venture capital in Jamaica, with the objective of broadening and deepening the financial options available for Small and Medium Enterprises (SMEs). A broad consensus exists among stakeholders in both the private and public sectors that there is a strong demand, but very limited supply, for venture capital investments in Jamaica. It is also recognized that, without significant fundamental interventions, existing deficiencies within the local economic environment are likely to hinder any widespread development and frustrate the objective of developing a sustainable venture capital industry. The role of the Government, through the Development Bank of Jamaica (DBJ), is viewed as that of a catalyst for the development of the industry. In this role, the Government would eventually scale down its involvement as the leading driver of the industry, apart from its regulatory role and some level of capital involvement, when the private venture capital markets have reached a stage of maturity and sustainability. 2.0 Role of Venture Capital Financing in the Growth-Inducement Strategy SMEs have been recognized world-wide as primary drivers for broad-based and inclusive job creation and GDP growth. Moreover among such enterprises are often found many start-up firms forming the leading edge in the process of innovation and technological change which creates new products that provide new opportunities for investment, job creation and growth. However, such enterprises typically face limited access to the traditional and mainstream financial markets, due to a number of factors inherent in their economic status: their small size, limited or unique asset base, specialized areas of operation, lengthy start-up phase, and attendant risk-reward ratio (high risk, high reward). In order to address this problem, many countries have sought innovative financing solutions, including the establishment of venture capital industries to provide the required ‘patient’ long-term 58 This chapter is adapted from the Development Bank of Jamaica, “Project Summary – December 15, 2011: Jamaica Venture Capital Programme” (Unpublished, December 15, 2011). 155
capital, mainly in the form of equity financing, as a sustainable means of financing for SMEs. Thus, within the context of the strategic framework of the Growth-Inducement Strategy presented here, the JVCP is viewed as a flagship initiative which is intended to promote the following objectives: Development of entrepreneurship; Innovation and technological development; SME development; Increased access to, and lower cost of, financing for both early stage start-ups and established companies; Development of business networks (including firms oriented to technology, research, product development, management and marketing) to service the SME sector. 3.0 The Venture Capital Industry in Jamaica Venture capital investments in Jamaica have generally operated through an informal mechanism. This includes capital available through the entrepreneur’s own funds or that of friends and family. Additionally, “angel investors” have always been active, but funding through this source has depended to a great extent on access to these investors by entrepreneurs, which is a function of their level of social capital and ability to network. Formal venture capital programmes have been limited. Apart from the Jamaica Venture Fund which mobilized capital through a number of corporate entities and financial institutions in the early 1990s, there have been few or no certifications of Approved Venture Capital Companies, under Section 36 of the Income Tax Act. Moreover, the sustained environment of macroeconomic instability and the extent of Government demand for funding for its own operations were not conducive to the development of a Venture Capital industry. In order for sustainable development of the economy to occur, the economic environment has to be conducive to long term capital formation. This requires that investors, fund managers and entrepreneurs be able to operate within a transparent legal, regulatory and taxation environment. Analysis of the Jamaican environment has identified clear gaps in this environment. Hence, the components of the JVCP will be designed to fill these gaps. The deficiencies identified in the local venture capital environment include: Lack of an equity culture as well as lack of trust between providers and users of capital; Lack of venture capital and private equity fund management expertise; Lack of investor knowledge of the venture capital asset class, with little or no involvement of institutional funds including pension funds; Lack of investment-ready entrepreneurs and SMEs, as many require training and capacity building in order to attract investors; 156
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i A GROWTH-INDUCEMENT STRATEGY FOR
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To the many ordinary Jamaicans who
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Preface The Jamaican economy has ex
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for making a determined start on th
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the private sector groups, listed b
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Citibank N.A. Jamaica Branch Grace
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need for “additional fiscal space
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Chapter 2 ________________ Summary
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1.0 The Economic Situation Today 1.
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expected to provide an essential an
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Table 2.1. The Policy Framework: A
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programme of social inclusion that
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Strategic Focus Table 2.2. Growth S
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6.0 Short-Term Growth Stimulus 6.1
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decline of 2.0 - 2.2 percentage poi
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Table 2A.2. NWA Projects To be Fast
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Table 2A.5. Community Renewal Proje
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Table 2B.3. Impact of Repairing Far
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Appendix 2C Methodology of the Grow
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Part I _________ Overview 28
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2.0 Vision 2030 Jamaica Before delv
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3.0 May 2010 Security Event and Aft
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the longer than anticipated global
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April July October January April Ju
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Three industries recorded increases
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9.0 Proposals for Growth-Stimulus I
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targeted economic and social infras
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partnering with government to disco
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3.0 Growth Inducement Strategy The
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Growth-Inducement Strategy Alignmen
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50 Part II _________ Situational An
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inadequate provision of public infr
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2.0 Macroeconomic Assessment 2.1 In
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Increased global oil consumption wa
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$4,742.0 million and $688.4 million
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Non -Traditional Domestic Exports E
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negative impact of the Jamaica Debt
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ethanol and paint, whereas lower de
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Analysis of preliminary GCT data re
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The number of ship calls to the isl
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industry was, however, estimated to
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4.0 Projected Performance 4.1 Calen
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increased marketing and extension s
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Electricity & Water For FY 2010/11,
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J$ Million Figure 5.1. Private Sect
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2011/12). These extreme weather eve
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Chapter 6 ________________ Assessme
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creates allocative inefficiencies,
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Million $ Per cent Jun-10 Mar-10 De
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Table 6.1. Employed Labour Force by
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J$ million Mar-10 Dec-09 Sep-09 Jun
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FIGURE 7: GROSS NATIONAL SAVINGS RA
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4.10.2. However, the extent of the
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Part III ____________ Analytical Fr
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functional relationship between the
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It follows that: (5) s = I/Y = [S -
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However, the existence of measureme
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Page 153 and 154: 7.0 Fundamental Steps Forward for J
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With the benefit of hindsight, some
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ight. Where we as a society fail is
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and exclusion of the majority of th
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the elders, youth, children. What f
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C __________________ Enhancing Nati
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Figure C.1. National resilience is
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