STUDY ON ALTERNATIVE AND INNOVATIVE FUNDING MECHANISMS FOR ACP CULTURAL INDUSTRIES

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1 STUDY ON ALTERNATIVE AND INNOVATIVE FUNDING MECHANISMS FOR ACP CULTURAL INDUSTRIES Prepared for ACPCulturesplus conference ACP secretariat- European Union October 2016 Brussels, Belgium Prepared by Dr. Keith Nurse Senior Fellow, Sir Arthur Lewis Institute WTO Chair, University of the West Indies

2 Objectives of the Study To identify the different types of alternative and innovative funding mechanisms in operation in ACP countries and internationally; To identify indirect public support mechanisms; To identify innovative and alternative public funding initiatives and analyse the types of private support mechanisms; To identify case studies/best practices; To put forward conclusions and recommendations.

3 Rationale for the Study Supporting the growth and industrial development of the cultural industries is considered to be of increasing importance as the ACP economies work towards diversifying away from traditional export activities and exploiting the opportunities in new trade arrangements like the EU Economic Partnership Agreements. Investment in the cultural industries also presents other benefits such as the cross-fertilization and promotion with other sectors like tourism, manufacturing and ICTs thereby increasing value-added flows.

4 Incentive/policy measures promoting indirect public funding There is a wide array of fiscal and tax incentive/measures being applied with varying levels across countries and regions. Most of the incentive measures are focused on fiscal measures as well as trade and border measures which tend to be passive and not generating new growth. Fiscal and Tax Incentives Tax exemption for artists and entrepreneurs Waivers on royalty income Double taxation treaties Withholding tax Sector specific tax credits Trade and Border Measures Tariffs and tariff waivers Levies and other duties Non-tarriff measures

5 Incentive/policy measures promoting indirect public funding There needs to be a stronger emphasis and allocation of resources for market development and industrial/innovation programmes. These approaches tend to be more effective in winning markets and require more proactive policies and measures. Market Development Programmes Trade missions (inward and outward) Export grants Trade fair and strategic B2B support Strategic partnerships Industrial and Innovation Programmes Human resource/capacity development Institutional capacity development Incubators Clusters Financing for start-ups

6 The involvement of banking institutions in funding culture Key Findings: The role of commercial banks is limited and considered expensive (e.g. often at consumer loans rates) and inflexible for creative firms (e.g. high collateral requirements; monthly repayment installments; no recognition of IP as collateral) Financing Options for Creative Enterprises in the Caribbean Source: IDRC/Nurse 2012 Barbados Jamaica Trinidad and Tobago Own resources Reinvestment Loans Grants New Investors

7 The involvement of banking institutions in funding culture Key Findings: The role of development banks (e.g. concessionary loans and loan guarantees) and export/import banks (e.g. collateralizing contracts and rebates) are expanding but still embryonic and not widespread. EXIM Bank Loans to the Creative Sector in Trinidad and Tobago, Shares by Value TT$ Source: EXIM Bank 2016 Music/Media Production 47% Film 38% Fashion 15% Case Studies Cultural Industries Guarantee Fund, ECOWAS Investment and Development Bank Nigerian Creative and Entertainment Industry Stimulation Loan Scheme Culture Bank, Cape Verde Strømme Micro Finance East Africa Ltd. Micro-finance, South Pacific Business Development (Samoa, Tonga, Fiji, Solomon Islands).

8 The extent to which private investment Key Findings: supports the ACP cultural sector Most creative entrepreneurs finance their operations through own resources and reinvestment. Corporate sponsorship (e.g. telecom firms) is a growing area but it is largely targeted at events and festivals.

9 The extent to which private investment supports the ACP cultural sector Key Findings: Venture capital and angel investing are embryonic and expanding. Micro credit and financing is not widespread and is often funded through international donors targeting poverty reduction schemes. Case Studies: AMOCINE, AV Fund (Mozambique) DOEN Foundation, Africa Unsigned Music Crowdfunding Arterial Network Angel investing network, InfoDev/Caribbean Export Development Agency CaribbeanTales Incubator, FLOW Caribbean Micro-finance, South Pacific Business Development (Samoa, Tonga, Fiji, Solomon Islands)

10 Mixed funding models Key Findings: Mixed funding models such as public-private schemes are a growing area of financing. Direct Assistance Grants, Caribbean Creative Industries Firms by Sector Source: Caribbean Export Development Agency 2016 Film 7% Animation 4% Case Studies: AMOCINE, AV Fund (Mozambique). AV Production Grants, FilmTT (Trinidad & Tobago). Direct Assistance Grant Scheme, Caribbean Export Development Agency Music 23% Fashion 36% Handicraft 30%

11 The impact of crowdfunding Key Findings: Crowdfunding is a new area of financing for the creative sector which has expanded particularly in Africa and is spreading to the Caribbean and the Pacific. The quantum of funding generated is small but has potential for growth as the schemes target diasporic communities. Case Studies: ThundFund (ZA) M-Changa (Kenya) StartCrunch (Nigeria) Crowdfunding, Apura Networks (Suriname) Crowdfunding, South Pacific Business Development (Samoa, Tonga, Fiji, Solomon Islands)

12 To what extent do the identified innovative and alternative funding mechanisms provide sustainable support to the sector? Key Challenges In most countries only one or two types of alternative/innovative financing are available. Most financial institutions do not have a suitable framework for creative firms. The return on investment tends to be low and perception of high risk. Access to finance is a critical challenge but it is not a standalone issue. Key Recommendations Facilitate alternative financial instruments to attract sustainable investments through donor funds. Implement end-to-end financing to include start-up, cluster funding, equity & debt, and export financing. Strengthen marketability & profitability of firms through incubators and business coaching. Improved access to finance should be twinned with market access/entry programmes.

13 Innovative solutions implemented by organisations for increased economic profitability Start-up funding, clusters & incubators can be facilitated through regional or industry associations. Incubators Accelerators Market Entry programme Startups Clusters Regional development banks can facilitate debt and equity financing. Export financing can be facilitated through export promotion agencies. Start-up Financing Financing for Clusters Equity Financing Debt Financing Export Financing/Facilitation