Helping SME’s invest in emerging markets: A conversation with James Polan, OPIC’s Vice President of Small and Medium Enterprise Finance
OPIC’s Small and Medium-Enterprise (SME) Financing is available for businesses with annual revenues of less than $400 million. In this interview, James Polan, Vice President, Small and Medium Enterprise Finance, explains the work that he and his colleagues do to provide counsel and financial products to these types of businesses looking to do business in emerging markets.
Why does OPIC focus so much of its time and energy on Small and Medium Enterprises (SMEs) in emerging markets? What are the opportunities you see?
SMEs make up a majority of new investments not only in the U.S. but around the world, so it only makes sense for us to focus our time and energy in this sector. These companies generally don’t have the resources that a large company may have to go out and find the financial products necessary to make investments in difficult markets. We have put in the time to help clients to structure the deals in the right way, and to understand the legal ramifications.
There are boundless opportunities out there for SMEs to invest in these emerging markets. For instance in South Sudan, the newest country in world, they have natural wild mangoes growing so enormous and so plentiful, that when they fall from trees they block the roads that exist. As infrastructure is being built there, including roads, there are opportunities for businesses to emerge. In this instance there could be a fruit processing facility to take advantage of the natural resources. This is just one example of the exciting possibilities we see and, in order to make a significant impact around the world, these SMEs need us and we need them.
How can OPIC’s financial products support American business expansion in emerging markets?
We utilize loans and political risk insurance to support the expansion of American SMEs in emerging markets. It is virtually impossible for a SME to obtain a long-term fixed interest rate loan on their own, in any of the countries that we operate in. The financial markets are just not prepared to take SME risk in emerging markets. Often times these companies are self-financing and need political risk insurance. We insure against a whole host of risks including expropriation, terrorism, and political violence – all issues that SMEs are concerned about and unable to manage internally.
At OPIC, I believe we truly understand the possibilities and we understand the risk, and bring our knowledge and capabilities of working with governments to these businesses.
Where do you see the most opportunity – geographies and sectors – for small businesses in emerging markets over the next few years?
We see some of the biggest opportunities in terms of geography in Haiti and Central America, and extraordinary opportunity in particular in Africa. Haiti is rebounding from the hurricane and economic strife. In addition, Africa’s growth has been phenomenal and is projected to grow at a very rapid pace in terms of consumer goods, disposable income, and the rise of the middle class. In the past the discussion around Africa often centered on political instability, whereas today, businesses are waking up to new opportunities, like the mangoes I mentioned earlier, and there is a powerful, palpable interest now from mainstream companies all over the world to invest there.
Can you tell us about a project that you have visited where you have been able to witness impact firsthand?
Some of the best examples I have seen come from the countries where we see the biggest opportunities. They show real impact both here in the United States as well as in the host country. In Tanzania, a small U.S. trucking business from Maryland had 10 trucks moving copper between neighboring countries, and we were able to help them incubate their company to the point where we now have 55 trucks and will soon have more than 100. They are now at nearly a 100 percent capacity – and every truck supports at least two families in the region.
In Brazil, Sambazon, a small and growing U.S. business, needed financing for an overseas project to develop a sustainable way to build a more reliable supply of açai berries. We financed construction of an environmentally-sustainable, organic acai-berry processing facility. That facility creates income for more than 10,000 family farmers in the rainforest and Sambazon more than doubled its U.S. employee base.
What’s the most exciting thing you have witnessed from a business perspective in Africa? What are the opportunities for SMEs in Africa?
Foreign investment has been growing extremely quickly in Africa in the past five years, and what we will continue to see and will watch carefully is a massive investment in infrastructure. SMEs typically won’t be involved in large infrastructure, but they are involved in all of the industries that surround it including, building materials, low-cost housing, small hotels, consumer products and supply chain projects including cold storage, logistics, transportation, packaging, agro-industry and waste management. This is where I come back to my mangoes example. When there are real roads in places like South Sudan, these types of businesses will truly be able to be imagined, and we at OPIC believe these things are coming.
Can you give us three key statistics worth watching in the next few years as it relates to Africa’s growth and opportunity?
There are many things that OPIC will be watching in the next few years with regards to Africa, and they are all inter-related. As we watch the middle class grow and expand, we carefully monitor the growth of the consumer goods sector. When there is more disposable income, more goods are produced and delivered, creating more opportunities for businesses in these markets. In turn, we truly hope to see the growth of foreign investment in these emerging markets continue to grow and expand.