Letter to the editor

The merits of private equity

Roger Leeds Professor Johns Hopkins School of Advanced International Studies Washington

Like virtually everyone who tracks and analyzes financial flows to developing countries, the authors of the otherwise excellent analysis in the F&D article, "Financial Globalization, Beyond the Blame Game" (March 2007), completely ignore private equity, which is playing an increasingly important role in developing countries, and focus on FDI and portfolio equity flows.

They are correct that FDI is less likely to head for the exits at the first whiff of crisis. Yet private equity, which is endowed with the same long-term, growth-generating features and arguably makes an even more important contribution to private sector development, merits nary a mention. Most private equity investors target worthy companies with limited or no access to capital, and financial returns materialize only when and if they enhance company performance. These firms are not listed on stock exchanges but have promising prospects for growth and profitability if they could gain access to investment capital.

Between 2003 and 2006, private equity fundraising for emerging markets increased more than 900 percent, far faster than either FDI or portfolio equity investing. Isn't it time for private equity to be a legitimate source of capital for private firms in developing countries? It would be relatively easy to begin tracking and reporting private equity flows as a distinct asset class worthy of its own line item. This modest initiative would more accurately differentiate among developing country capital flows and heighten awareness and understanding of a financing technique that is becoming increasingly significant for those firms that have the greatest difficulty gaining access to the capital they require to thrive.

Building a solid foundation

Camille Sitou Cotonou, Benin

I was pleased to read "Africa: Making Its Move" (December 2006). I am convinced that, one day, Africa will make its move. But it won't be as easy as people think. Africa is developing through a series of short-sighted solutions, not on the basis of solid, credible foundations. Since independence in the 1960s, Africans have been unable to change the economic system established by...