Posted by: cjwmitchell | April 5, 2010

Similarities and differences

I recently realized that I have been exceptionally lucky in the past 12 months: I’ve had the chance to travel to 5 continents in that time.  Two of those trips were as part of the Access to Capital Study Tours.  Throughout our time in Kenya and Rwanda, a few people asked me what I thought the similarities and differences were between these two countries and Vietnam, Singapore, and Malaysia.  Having lived in India for two years before MIT Sloan, I also couldn’t help rolling India into these (admittedly muddled) comparisons.

There were many similarities.

Whether the Saigon Stock Exchange or the Nairobi Stock exchange, there is insufficient liquidity and low volumes of trading.  Banks are too conservative.  They require an excessive amount of collateral and charge such a high interest rate (in Rwanda ~19-21%) as to be a disincentive to equity investors.  Nevertheless, the other similarity was that there were no shortage of risk takers who were trying to push forward these markets by establishing private equity funds, providing un-collateralized loans, and offering consulting support to help SMEs move from S to M to L in both thinking and capabilities.

There were obvious (and expected) differences in the level of development between Malaysia and Singapore and Vietnam, Kenya, and Rwanda.  One small thing that I kept thinking about was the approach to the city from the airport.  When I was living in Hyderabad, they built a new airport which was much farther from the city center.  The “entrance” to the airport started about 2 or 3 miles from the actual structure and I am sure that those perfectly manicured roads and the strip of green garden that served as a divider were built for the express purpose of making sure that people who were new to the city would have a favorable impression.

When I compared what we had seen in Nairobi and Kigali to what I had first observed in Hyderabd, there were also a few surprising cosmetic differences:

1) A lack of car horn honking

2) Very few stray dogs (or stray buffalo for that matter)

3) Relatively little trash in the streets

On the face of it, these are the casual observations of a very limited data set (we spent most of our time traveling between office buildings in the centers of cities).  But I can’t help but think (and hope) that maybe these differences point to something more significant.  To some extent all of these observations are related to aspects of how “the commons” are treated by individuals and regulated by the government.

In addition, these kind of observations play a bigger role in the access to capital story than one may think.

These impressions, as superficial as they are, often have a significant impact on potential investors: “Do I feel safe?  Do the people in the street look happy or angry?  Could I picture coming back to this place a few times a year for board meetings? How easy is it to get around?  Are there places to stay where I’d be comfortable and places to eat that I would enjoy?”

These are superficial issues but they do shape how “investable” a country is and though there are massive, substantial issues, (lack of infrastructure (we heard that it costs $2000 to get a 40 foot shipping container from New York to Mombasa, Kenya–18,000Km–and $6000 from Mombasa, Kenya to Kigali, Rwanda–1,600 Km), access to quality education and health care, ease of starting a business, a robust and well enforced legal system, pervasive corruption, unstable governments, periodic political violence, etc.) one small take away from our trip was that there are great enterprises and Kenya and Rwanda are indeed “investable”.  This is not to say that Hyderabad does not receive more than its fair share of investment, far from it, but instead to highlight that one of the benefits of being able to go to these countries is the chance to think through what it may be like to do business in these places. And for the majority of our participants I believe we came away with the opinion that while it may be challenging it would be well worth the effort.

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