What is wrong with this scenario? Recently on the Belize Culture List, (bz-culture-request.psg.com to subscribe--place subscribe in the body of message) Wendy mentioned that our Belizean Minister of Economic Affairs, announced in a speech, that Belize lending institutions are awash in money. Like the Development Finance Corporation.
The presumption by Belmopan Wallahs of either major party, is that lending would create development. Whether the lending was by home grown institutions to Belizeans, or whether political parties controlling the country and treasury borrowed themselves from Foreign countries, or Foreign Lending Institutions for government operating expenses.
This is not a new phenomena. In one form or another it has been the philosphy of amateur port town politicians in the small backwater country of Belize for 35 years. Many the election, politicians have bragged about their ability to borrow money for the country from abroad. The national debt a year ago was 3/4 billion dollars. Since then, there has been a secretive silence on the level of national foreign debt. A lid seems to have been clamped on the information.
On the other hand, Belizeans have often been sold in public statements, by both politicians and the media; that the lack of borrowing was the major problem facing economic development. All efforts were made to create new institutions locally run, to enable citizens of Belize to borrow money, to invest. In the last ten years, Belize has now many institutions to lend money to aspiring entrepreneurs, but the economic success statistics continue to be bad in proportion to population levels and the opportunities that people can see.
Why is that? Can it be that the politicians were misinformed? That their premises were false ones? Is borrowing the wrong way to develop the economy of either the country, or the individual?
I'm just a fisherman and tourist guide; but my opinion and experience over 40 years watching others with great investment ideas, borrow to get their ideas off the ground; leads me to conclude that borrowing and loans "is not the way to go." The premise is a FALSE one! I've seen many a successful idea crash and bankrupt good friends who swallowed the borrowing loans idea as their route to economic success. ( Matus and his Charger beer factory and others!)
What happens? Lots of things happen. Firstly, any lending agency wants a timetable schedule of repayments. This timetable cripples a start up business. Many things can go wrong with development in Belize and many a successful idea goes wrong by building too fast. The payment schedule and the interest cripple you. People that borrowed, also had to provide some kind of asset collateral and even when their venture failed temporarily through unforseen circumstance, if such venture had been done on a slower smaller cash basis, it would have succeeded. Yet, due to the putting up their assets for collateral, they were wiped out of the entrepreneurial work/business pool that the country has, never to recover and try again.
I've come to some conclusions. Borrowing money to start up a business is a bad idea. Better to sell shares and take in some investors. Once you have cash flow and marketing working, you then can borrow to keep the operation going and expand; but the start up phase must be on a 'pay-as-you-go basis. If you have no money, the best way of doing that is taking in partners, or shareholders.
If the Belmopan Wallahs want to really give new investment in Belize with Belizeans a chance, they would change the loan scenery to one of an INVESTMENT BANK methodology. These institutions would invest in new start ups. Not lend them money. The lending part would come later, a couple of years down the road.
Another way of creating investment is the issuing of options on stock for your investment idea in lieu of cash payments. If you do not want to take in a partner, but you need somebody's services, then you trade, or barter OPTIONS on stock. Instead of paying them, either give them stock, or give them the option to buy stock for a specified period (e.g.: 3 years ) at a given fixed price. They can then buy the stock and sell it later for a profit, if the business actually succeeds. If not, they simply lose their time and labor.
You can trade stock for second hand equipment that you need to operate. Stock does not have to be paid back if you fail, or are doing financially poorly for a number of years.
In Belize, there are many pitfalls to making a business a success. Not least are brownouts, power failures, irregular voltage, lack of internet service because of cost, lack of phone service because your busines is in a rural area the telecommunications monopoly does not want to serve. Labor laws that specify certain operating costs, even when other government departments such as BEL cause you to have to lay off that labor due to brownouts or lack of promised electrical supply. Sudden changes in government rules and policy, or taxes. The unexpected problems are endless. Most of them can be overcome eventually, if given lots of time and the cash ability to survive to tackle them. But businesses that use LOAN CAPITAL for start up, almost 100% crash into bankruptcy with loss of total assets used as collateral ( often family real estate ) when they are unable to meet the escalating demands for time payment schedules and the rising debt load from interest payments.
I'm reminded of Hans Pang, a 17 year old school kid working computers for a new 'start up' company enterprise in California. He could take stock, or a low wage, or minimum wage and stock options. He was a whizz kid on the computer but lacked an education in school. His parents insisted that he stay in school, so he worked for a new start up company for minimum wage plus stock options. The company flourished, he was offered huge salaries if he would quit school, but his parents insisted he stay in school. So he worked weekends and holidays for the company and did his homework for school otherwise. Han's was really mad at his parents when he lost six weeks work last summer to prepare for the SAT test. He wanted to work for $8.75 an hour and stock options, a raise in pay. Han's allowance is $20 a week. Han's was a hard worker and eventually the small company decided to change from a private company to a public company and offer their stock for sale to the public. They became an IPO, or an Initial Public Offering. While Han's was in school, he watched his 750 stock options go sky high in value. Han's and his friends would pop into the school library to connect on the internet and see how his stock options were going. His calculus class teacher did not know. Last I heard, Han's was worth $150,000. He still has to buy his $45 market priced stock options at the fixed price he was issued them ( called warrants ) for (about $2 ), but his profit is real if he wants to excercise them. He has through his warrants ( stock options) the right to buy the company stock for $2 each share, no matter the value on the stock market.
Belizeans need to learn there are better ways to start a business than loans recommended by amateur politicians in Belmopan. I myself faced this same problem in my mid-twenties on the island of Caye Caulker. I couldn't borrow the $700 Bz for a 7 hp diesel engine. I had build a 24 ft cabin cruiser, but had no money for the engine. The boat was built over two years, as I could afford the lumber, my labor was free while I taught elementary school. Holy Redeemer Credit Union wouldn't lend me the money, the Royal Bank of Canada wouldn't lend me the money. I am thankful now they didn't. My idea was to go into tourism at a time there was no tourism industry in Belize. Just a few visitors for oil exploration at the Bellevue Hotel of Mr. Dinger's day and the odd colonial officers visiting at the Ft. George Hotel. It took two more years of scrounging and saving to get the diesel engine, but things looked up after that. Eventually, Marvin Sabido( of the drugstore in the port) liked the idea of the tourist business and built a hotel on the Caye. There was no tourist flow then. I got my "tourists", by going into the mainland and camping on board on weekends, right in front of the Bellevue Hotel and sweet talking visiting business people into going out, at the bar.
Eventually, Sabido flopped and put his hotel up for sale. An unbelievable high price of $18,000 for it. Leo Peachy bought it. I was only making less than $200/month as a teacher. Many of my tourists became personal friends. The tourist business is only 10% the expedition, the other 90% is personality and fun they have. I offered many of my regulars, 'stock' in a new corporation to buy the hotel. Eventually, a year later we managed to raise the $18,000 among tourists who had become personal friends and bought the hotel. Because there was no debt and because dividends were certificates for a fixed number of FREE accomodation and trip days per year, there were little expenses and even though tourism had not yet developed in Belize, it was able to gradually grow. Money earned was plowed back in, mostly on advertising and other upkeep costs. This was one of the major foundations of all the Belizean tourist business back in the 1960's and 70's. The start of a new industry.
You notice that both the initial start up, was by sweat and labor and even the expansion into bigger things was by issuing stock ( or shares ), no interest to pay, no payments to pay, just upkeep costs, and dividends were FREE days of vacation. The shareholders of course brought PAYING friends, so any vacation was not a loser on their part.
The point is, that loans are a VERY DIFFICULT way to invest in Belize. The failure rate is extremely high. I have no exact figures but would guess in the 90% range from observations. These would-be entrepreneurs are the right people that Belize needs, but if they lose all their collateral and real estate of family and friends to foreclosure and bankruptcy on loans, their enthusiasm and investment potential is lost to the country of Belize nearly for all time. Selling them on investing in Belize based on loans is the wrong message. The sellers of this message are doing a disservice to Belize Development.
If the government really wants to help, they need to put in the infra-structure for an investment bank, a stock market and the Belizean educational establishment needs to emphasize alternative ways of financing the methods of entrepreneurial startups in Belize in their schooling. Unfortunately, using port town politicians as leaders is like the "blind leading the blind"! They lack the personal business experience for the most part and went into politics because they could not compete in the market place. Starting a business in Belize by loans is not anyway I would recommend for any entrepreneur. Just my personal opinion!