Economist Professor Winston Moore is advising businesses and entrepreneurs concerned about the cost of capital to consider equity financing, where they access funding by giving the provider a stake in their enterprise.
He made the suggestion as Barbados Chamber of Commerce and Industry (BCCI) president Paul Inniss said that businesses were prepared to invest more but needed to be assured that they would make a return on the monies expended.
Moore, who is Professor of Economics and Deputy Principal of the University of the West Indies, Cave Hill Campus, said the issue of cost of capital was not discussed in Barbados a lot but it was an important one.
He said: “Think about how most businesses finance their new investment. The the first thing that they do is that they look at their cash. Can I do it out of my cash? The second thing they do is, can I get a loan from my partner bank?
“And the third thing that is really far down the line is equity, and we don’t have a really great conversation about equity in Barbados. And if you look at those centres of innovation around the world, most of the innovation that is being financed and taking place around the world is financed through equity.”
This included investments in artificial intelligence as Moore noted that OpenAI, which he called “one of the most innovative AI companies in the world”, and another leader in the area, Anthropic, “are benefiting not from lending from commercial banks, but from persons who have an interest in this particular area, maybe sometimes other companies”.
“So, for example, maybe Microsoft might say, ‘let me invest in these companies so that I can make sure I keep pace with what’s happening in artificial intelligence, even though I’m not part of OpenAI or Anthropic’,” Moore said.
“So equity, even though it’s really far down the line in Barbados and other small open economies, is actually something that I think we need to put on the table a little bit more.
“I know, for example, the Government of Barbados has been trying to push the idea of the junior stock market in Barbados, and that is one of the things that, for example, the University of West Indies is really interested in, because we see that as one of the ways in which we can finance a lot of the innovation taking place at the University of West Indies.”
Moore continued: “We have a number of really great research students that are coming out with ideas that can be commercialised very quickly, but the key problem is how we can finance that commercialisation. I think the development of the junior stock market would be one
of the key ways.
“So I think one of the ways we can deal with the issue of the cost of capital in Barbados is actually the area that we don’t quite look at a lot, and that is the issue of equity financing.”
Inniss said investment was key for businesses and Barbados to grow and develop and provide opportunities, but reminded: “That capital or that investment is not free. There’s a cost attached to it, and it’s going to call for a return, failing which you will not get the investment.”
(SC)
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