An ECU 400 million ($503 million) investment company and a separate guarantee fund to support small and medium-size business development in the Arab world has been proposed in a new report published by a London- based think tank, the Centre for the Study of Financial Innovation*.

The report was written by Jacques Roger-Machart, head of business development in the international division of Electricite de France and a former deputy in the French national assembly.

The report calls for the proposed investment fund, called the Euro-Arab Investment Company (EAIC), to take equity stakes in Arab enterprises.

The parallel guarantee fund would provide private investors in the EAIC and projects funded by the company with partial insurance should an investment fail. Roger-Machart suggests it should have capital of ECU 40 million ($50.3 million).

Roger-Machart suggests European governments and the EU could provide a total of ECU 150 million ($188.7 million) for the EAIC. This should be matched by Arab public-sector institutions. The balance should come from the private sector.

Roger-Machart says this would provide the EAIC with investable funds of about ECU 60 million-65 million ($75.5 million-81.8 million) a year. This should allow the company to make about 20-22 investments annually in its first five years of operation.

‘An active exit strategy will also be pursued,’ Roger-Machart says. ‘The EAIC will look to sell its investments profitably. Most such sales will probably be on a private placement basis, though where appropriate the company will press for a stock market listing on Arab exchanges.’ The EAIC may eventually seek a stock exchange listing for itself.

Roger-Machart says the proposal has been welcomed by some Arab officials and that the idea has been submitted to the European Commission.

* The Euro-Arab dilemma: Harnessing public and private capital to generate jobs and growth in the Arab world, by Jacques Roger-Machart. Centre for the Study of Financial Innovation (CSFI), 18 Curzon Street, London W1Y 7AD