Wednesday, April 16, 2014
After the Egyptian revolution in February 2011, the U.S. had a good idea: Why not create an "enterprise fund" to make loans to small and medium-sized Egyptian businesses? President Obama announced the plan "to build networks of entrepreneurs" in Egypt in a May 19, 2011, speech.
But more than two years later, the fund has yet to make a single investment. And the question is: What happened?
The Egyptian-American Enterprise Fund is another example of why almost nothing works as intended in Washington. It's a tale of bureaucratic delay and congressional dithering. In a 21st-century world where change happens rapidly, the instruments of the U.S. government still lumber along at 19th-century speed.
"Sometimes in Washington, things take longer than they should, but in this case it's worth a wait," says Tom Nides, who as deputy secretary of state oversaw the creation of the program and is now vice chairman of Morgan Stanley. Let's hope he's right.
The enabling legislation was passed in December 2011. That was nine months after a State Department fact sheet had first outlined a plan for a $60 million fund, but at least Congress seemed on board. That hope was premature.
Inside the administration, bureaucrats were skittish. A December 2011 report by three U.S. Agency for International Development analysts said the plan had "significant risks," that the fund might not have enough money to hire professional staff, and that 10 enterprise funds set up in the 1990s to aid Eastern European countries had poor returns and that "very few would have passed a private-sector viability test."
Useful warnings. But this cautionary report wasn't shown to the man the administration asked to head the fund in February 2012. He was James Harmon, who had run the U.S. Export-Import Bank in the 1990s and then created a successful emerging-markets fund. Harmon took the job, but it wasn't until many months later that someone gave him a copy of the skeptical USAID report.
Harmon understood that the fund would have more impact if other nations participated. In October 2012, Qatar agreed to match the U.S. contribution. More countries seemed likely to follow.
But in November 2012, just after the administration notified Congress that it would finally start spending money, the House of Representatives put a "hold" on the funds.
House members were wary of the Muslim Brotherhood government of President Mohammed Morsi that had taken power in Egypt. This was an understandable worry -- but not a reason to halt a program that was supposed to benefit the Egyptian private sector.
Once Congress had blocked the funds, Qatar and other potential partners pulled back. But Harmon continued to recruit an Egyptian-American board, gathering such prominent figures as Dina Powell, a former assistant secretary of state in the George W. Bush administration; Sherif Kamel, the dean of the business school at the American University of Cairo; Tarek Abdel-Meguid, a founder of Perella Weinberg, a big asset manager; and Hani Sarie-Eldin, former chairman of the Egyptian Capital Market Authority and board member of its central bank. The fund had everything, except money.
Congress finally lifted its hold last February, allowing the bank to start thinking again about making investments. Harmon developed a plan to buy control of a financial institution in Egypt that could get financing from the Export-Import Bank and dozens of other institutions around the world -- leveraging the U.S. commitment of $60 million annually over five years to produce a much bigger lending operation.
With this innovative structure, the fund might be able to deliver on its mission of financing the small and medium-sized enterprises that provide 80 percent of the jobs in Egypt but are starved for capital.
This should be simple: A good idea, with a sound business strategy and smart people to run it. But nothing in Washington is ever simple. All you can say is better late than never.
David Ignatius writes about foreign affairs for The Washington Post. He can be contacted at: