News Column

Investment Leads to Better Times Ahead

March 2003, HISPANIC BUSINESS Magazine

Jesús Chavarría, Editor & Publisher

Through a recession, a war in Afghanistan, and a series of corporate scandals, the U.S. consumer remained remarkably optimistic. Until now. From Gallup to The Conference Board, polls show consumers growing sour. Whether the cause is war anxiety, news of record federal deficits, or a slow labor market, the result is further economic slowing, creating a self-reinforcing spiral. Many economists concede it will be difficult to realize the White House prediction of 2.9 percent GDP growth for 2003 in this situation.

What’s the way out? Since it was a decline in business investment (specifically, IT spending) that triggered the 2001 recession and subsequent stagnation, that might be where to look for a solution. Entrepreneurial activity serves as the engine for creating wealth and jobs. To stimulate the economy, the White House has proposed the elimination of dividend taxes, but as congressional critics point out, such a strategy only encourages investment in publicly traded corporations rather than in the small powerhouse companies that fuel growth.

To examine the capital-access issue in the Hispanic economy, this issue’s cover story looks at companies that have found mezzanine funding in unconventional ways. Emphasis on the unconventional – meaning any type of investment other than commercial bank loans – stems from several research findings. On one hand, Hispanic entrepreneurs still face obstacles in the banking system, despite their heavy participation in it. On the other hand, they face steep odds in the Small Business Administration’s SBIC and 7(a) programs. And all entrepreneurs will meet resistance in venture capital and private placement investments, given their collapse after the dot-com bubble.

Right now, Hispanic CEOs with the sophistication to access growth capital are true heroes and role models – not only for other Hispanics, but for entrepreneurs throughout the economy. Those "Captains of Capital" point the way for people to pull themselves up by the bootstraps and out of this economic slowdown.

This issue also features the introduction of the Hispanic Business Stock Index (HBSI)SM, an ongoing measure of investment in the Hispanic economy. The HBSI tracks the price of publicly traded firms that serve the Hispanic market. During the current downturn, the HBSI has outperformed the major stock indexes, a powerful indication of the strength of our market.

Eventually, this economic "soft spot," to quote the Federal Reserve Bank, will pass. The companies and entrepreneurs who have prepared financially for growth will prosper on the rebound, while those who haven’t will lag. That’s reason enough for all of us to look in our wallets and either invest in or solicit investment for the future.



Source: HISPANIC BUSINESS Magazine


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