After the Egyptian revolution in February 2011, the United States had a good idea: Why not create an “enterprise fund” to make loans to small and medium-size Egyptian businesses? President Obama announced the plan “to build networks of entrepreneurs” in Egypt in a speech on May 19, 2011.
More than two years later, the fund has yet to make a single investment. What happened?
The story of the Egyptian-American Enterprise Fund is another example of why almost nothing works as intended in Washington. It’s a tale of bureaucratic delay, congressional dithering and overall governmental constipation. In a 21st-century world where change happens so rapidly, the instruments of the U.S. government still lumber along at 19th-century speed — to our nation’s detriment.
“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.
Reconstructing the story of the enterprise fund shows how the cumbersome process worked. 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. Three analysts from the U.S. Agency for International Development wrote in a report that December that 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, amazingly enough, this cautionary report wasn’t shown to the man the administration asked to head the fund in February 2012. James Harmon, a prominent executive who had run the U.S. Export-Import Bank in the 1990s and then created a successful emerging-markets fund, 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, thanks to a personal appeal from Secretary of State Hillary Clinton. More countries seemed likely to follow.
But a month later, just after the administration notified Congress that it would finally start spending money, the House of Representatives put a “hold” on the funds. The key opponent was Ileana Ros-Lehtinen, a conservative Republican from Florida who was then chair of the House Foreign Affairs Committee.
House members were wary of the Muslim Brotherhood government of President Mohamed 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 in 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 in 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 Ex-Im 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-size enterprises that provide 80 percent of the jobs in Egypt but are starved for capital.
“The need for this program is urgent,” Harmon explained in an interview this week. “The Egyptian economy, which has existed for more than two years in a state of suspended animation, is now teetering on the edge.”
This one 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, I guess, is better late than never.
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