Journal of Political Risk, Vol. 7, No. 5, May 2018
Bhakti Mirchandani
Co-founder of the Global Microentrepreneurship Awards
Economic statecraft, the use of economic instruments to accomplish geopolitical objectives, dates back to the Louisiana Purchase. American Enterprise Funds, first established by USAID following the collapse of the Berlin Wall and the breakup of the Former Soviet Union, and the Tunisian American Enterprise Fund, launched in 2013, are two examples of both economic statecraft and powerful impact investing tools. This article provides a window into the Tunisian American Enterprise Fund’s investments, purpose, progress, strategy, and place in US foreign policy.
Net-Info, founded in 1999 as the first school in North Africa that specializes in 3D animation and video games, provides accredited training[1] in 3D computer graphics, animation, and video games to African youth.[2] Since inception, Net-Info has trained over 4,500 students and launched a living lab in which students and the public and private sectors collaborate on projects that have positive social impact.[3]
As an institution that equips Africa’s youth bulge with the new economy skills that they need to succeed in a globally competitive world, Net-Info contributes to Africa’s long-term economic growth and stability. Africa is home to over 1.2 billion people, over 60% of whom are younger than 25.[4] The African population is projected to double by 2050 to 2.4 billion,[5] of which 1 billion people are expected to be 18 or younger.[6]
With aging populations in advanced economies and rising wages in Asia, Africa has the potential to become the next manufacturing and service sector hub.[7] However, youth account for 60% of those unemployed in Africa,[8] and, as the Arab Spring demonstrated, youth unemployment can generate unrest.[9]
In 2015, Net-Info, which also has campuses in Egypt and South Africa, decided to open a new campus in Tunis, the capital of Tunisia.[10] Investing in education is critical in Tunisia, as youth unemployment was 35.4% in 2017.[11] Tunisia also faces the challenges of underemployment among educated Tunisians and a tourist sector that has not recovered from several terrorist attacks.[12] The Tunisian American Enterprise Fund, the focus of the rest of this article, provided Net-Info with the $217,000 capital infusion and technical assistance that it needed to open the new campus by taking a minority stake in the institution. By providing Tunisian youth with marketable skills, such investments help the US meet its security goals in the region.[13]
The Tunisian American Enterprise Fund
Context and purpose. Following the Arab Spring, the Obama administration proposed establishing Enterprise Funds for Tunisia and Egypt,[14] and Congress authorized the Tunisian American Enterprise Fund (TAEF) with the dual goals of promoting development of Tunisia’s private sector and financial stability.[15],[16] TAEF defines development impact as creating jobs, supporting the economic activity of women and youth, and developing Tunisia’s underserved interior regions. [17] In 2015, in recognition of Tunisia’s progress in building a functioning democracy, President Obama upgraded Tunisia to the status of major non-NATO ally.[18] After all, Tunisia was the start of the Arab spring, and its young democracy can be a model for other states in the region.[19]
Investment strategy. TAEF’s investment strategy is multipronged: (i) reaching a wide range of micro, small-mid cap SMEs, and high growth start-ups without competing with local financial institutions; (ii) directly investing in segments of the small- and medium-cap SME market that banks overlook; and (iii) supporting large cap SME in innovative ways, like investing in Tunisia’s first search fund.[20] A search fund is an investment vehicle through which investors financially support an entrepreneur’s efforts to find, acquire, manage, and grow a privately held company.[21]
Technical assistance.[22] TAEF requires its portfolio companies to improve their corporate governance and financial management policies and practices, including adopting regular and standardized financial reporting. Depending on the business, TAEF also may mandate worker safety or environmental standards or refer the business to other USAID technical assistance programs in Tunisia. Several portfolio companies noted that such requirements are beneficial.
Status. Funded by a USAID grant, TAEF commenced operations in 2014. The US government has committed $100 million to TAEF to date.[23]
American Enterprise Funds
Context and purpose. American Enterprise Funds were established by USAID to foster private sector development in former communist transitional economies in response to the fall of communism in Central and Eastern Europe.[24] Through Acts of Congress between 1989 and 1992, USAID established 10 investment funds in Central and Eastern Europe and the Former Soviet Union with total authorized funding of nearly $1.2 billion, collectively known as the American Enterprise Funds.[25]
Results. These American Enterprise Funds broadly succeeded. They leveraged their initial funding by reinvesting $1.7 billion of proceeds and raised $6.9 billion from outside the US government. [26] By providing significant development capital to small and medium enterprises (SMEs), the Funds created ecosystems for the private sector to flourish. [27] The Funds also provided SMEs with $77.7 million in technical assistance for financial and management skill-building and technical training. [28] A subset of the proceeds from the funds endowed 10 legacy foundations, which promote the private sector in host countries, including through youth training,[29] and build goodwill between the US and their host countries. Indeed, the Enterprise Funds had a transformational impact on Central and Eastern Europe.
A Longstanding US Tradition: From the Louisiana Purchase and the Marshall Plan to Video Games
Economic statecraft, the use of economic instruments to accomplish geopolitical objectives, stretches back to Thomas Jefferson’s 1803 purchase of the Louisiana Territory from France, which doubled the size of the US, but more importantly avoided military confrontation with France.[30] The most famous example of US economic statecraft may be the Marshall Plan to rebuild Europe. [31] Although Secretary of State George Marshall mentioned neither communism, nor the Soviet Union in his 1947 speech outlining the plan, according to diplomat George Kennan, the Marshall Plan would combat “the economic maladjustment which makes European society vulnerable to . . . totalitarian movements.”[32] The Marshall Plan succeeded in fostering European economic recovery[33] and political stability.
Accordingly, initiatives like the TAEF and its $217,000 quasi-equity stake in Net-Info are part of the fabric of the US geoeconomic system. Like the Marshall Plan, TAEF it indirectly advances US security by promoting stability overseas.[34] Like post-World War II Europe, Tunisia’s economic situation remains fragile: SMEs’ access to finance remains problematic, and large amounts of non-performing loans hamper state-owned banks. [35]
Economic Statecraft: All Fun and Games After All
While the Tunisian American Enterprise Fund promotes entrepreneurship in an important non-NATO ally and generates a financial return that benefits the US taxpayer,[36] on a lighter note, its funding facilitates the production of interesting video game art, like that by Net-Info-trained Wassim Herrira.[37] Following coursework at Net-Info, Wassim is working at a Tunisian IT services company. And viewing Net-Info student videos[38] may make even the most serious proponent of economic statecraft conclude that meeting US security goals in North Africa can be all fun and games after all.
JPR Status: Opinion
Bhakti Mirchandani has spent 18 years engaging with investors and social enterprises on social finance. She co-founded the Global Microentrepreneurship Awards (later Citi Microentrepreneurship Awards), sourced and marketed the first microfinance CLO without a public investor subsidy while at Lehman Brothers, led the first microinsurance investment in India–LeapFrog Investments’ investment in Shriram–while at impact investment bank Unitus Capital, and built the North America coverage practice for global development organizations while at Barclays. Bhakti holds a BA, MBA, and MPA from Harvard and teaches an impact finance course at Columbia. Bhakti is a Term Member at the Council on Foreign Relations and an advisor to multiple social enterprises and impact investors.
Endnotes
[1] http://www.taefund.org/en/our-investments/net-info/
[2] https://www.3dnetinfo.com/#section_1
[3] https://www.3dnetinfo.com/#section_1
[4] http://mo.ibrahim.foundation/news/2017/africas-growing-youthful-population-reflections-continent-tipping-point/
[5] http://mo.ibrahim.foundation/news/2017/africas-growing-youthful-population-reflections-continent-tipping-point/
[6] https://newint.org/features/2018/01/01/youth-bulge
[7] https://www.brookings.edu/opinions/the-crisis-in-tunisia-africas-youth-unemployment-time-bomb/
[8] http://www.un.org/africarenewal/magazine/may-2013/africa%E2%80%99s-youth-%E2%80%9Cticking-time-bomb%E2%80%9D-or-opportunity
[9] http://www.ilo.org/global/about-the-ilo/newsroom/features/WCMS_154078/lang–en/index.htm
[10] http://www.taefund.org/en/our-investments/net-info/
[11] https://fred.stlouisfed.org/series/SLUEM1524ZSTUN
[12] http://www.taefund.org/en/bowman-cutter-taef-chairman-statement-at-the-us-congressional-hearing-on-enterprise-funds-june-21st-2017/
[13] http://www.taefund.org/en/bowman-cutter-taef-chairman-statement-at-the-us-congressional-hearing-on-enterprise-funds-june-21st-2017/
[14] http://www.taefund.org/en/bowman-cutter-taef-chairman-statement-at-the-us-congressional-hearing-on-enterprise-funds-june-21st-2017/
[15] Tunisian American Enterprise Fund (TAEF) Evaluation Final Evaluation Report 2018. USAID. January 29, 2018.
[16] Tunisian American Enterprise Fund (TAEF) Evaluation Final Evaluation Report 2018. USAID. January 29, 2018.
[17] Tunisian American Enterprise Fund (TAEF) Evaluation Final Evaluation Report 2018. USAID. January 29, 2018.
[18] https://www.nytimes.com/2015/05/22/us/tunisia-to-become-major-non-nato-ally-obama-says.html
[19] http://www.taefund.org/en/bowman-cutter-taef-chairman-statement-at-the-us-congressional-hearing-on-enterprise-funds-june-21st-2017/
[20] Tunisian American Enterprise Fund (TAEF) Evaluation Final Evaluation Report 2018. USAID. January 29, 2018.
[21] https://www.gsb.stanford.edu/faculty-research/centers-initiatives/ces/research/search-funds
[22] Tunisian American Enterprise Fund (TAEF) Evaluation Final Evaluation Report 2018. USAID. January 29, 2018.
[23] Louise Crawford, Managing Director, Tunisian American Enterprise Fund
[24] https://www.foreignaffairs.com/articles/2001-09-01/doing-good-while-doing-well-unheralded-success-american-enterprise-funds
[25] https://www.usaid.gov/sites/default/files/documents/1863/EE_Enterprise_Funds-LessonsLearned.pdf
[26] http://eaefund.org/about-eaef/the-history-of-enterprise-funds/
[27] http://eaefund.org/about-eaef/the-history-of-enterprise-funds/
[28] https://www.usaid.gov/sites/default/files/documents/1863/EE_Enterprise_Funds-LessonsLearned.pdf
[29] https://www.csis.org/analysis/us-russia-investment-fund-and-75-million-question
[30] https://www.foreignaffairs.com/articles/2016-02-16/lost-art-economic-statecraft
[31] https://www.foreignaffairs.com/articles/2016-02-16/lost-art-economic-statecraft
[32] https://www.foreignaffairs.com/articles/2016-02-16/lost-art-economic-statecraft
[33] https://www.history.com/topics/world-war-ii/marshall-plan
[34] csis.org/analysis/enterprise-funds-american-soft-power
[35] Tunisian American Enterprise Fund (TAEF) Evaluation Final Evaluation Report 2018. USAID. January 29, 2018.
[36] csis.org/analysis/enterprise-funds-american-soft-power
[37] https://www.youtube.com/embed/JaLm_T0wOUk?autoplay=1
[38] https://www.3dnetinfo.com/video-7