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Cl Financial and diversification

Published: 
Thursday, June 7, 2018

In a publication in the newspapers titled “Diversification and the politician,” Mary King continues to shower encomiums on the vision, business acumen, entrepreneurship, and management capabilities of Lawrence Duprey and his co-directors and managers in the diversification of our foreign exchange earnings by using, as she claims, “low-risk capital via energy sector earnings to acquire a diversified economic cluster of companies spread throughout 35 countries and activities ranging from manufacture of alcohol beverages, petrochemical, financial services to real estate.”

The critical question which arises from this interpretation of the national benefits of the investment that was undertaken by CL Financial is whether this conglomerate’s entrepreneurship and pattern of foreign portfolio acquisition is the model to be followed in diversifying our economy and our earnings of foreign exchange.

In other words, should we be using energy sector earnings (as claimed), but derived to a large extent from the employment of local capital to invest in overseas entities instead of investment in the local economy, to produce goods and services for export or import substitution thus earning or conserving foreign exchange.

If the answer is that there are no such opportunities in the local economy, then such a response brings closure to the conversation on diversification of the economy.

There are, however, some comments which ought to be made on CL Financial’s foray into foreign investment:

1. The greater part of the financial resources used to acquire interests in the foreign companies in question came from the savings placed in CLICO ie, insurance money which constituted the cash cow for CL Financial and not energy sector earnings per se.

2. While insurance money is to be invested to earn income to meet insurance policy holders’ and depositors’ obligations, there are statutory and best practice and prudent parameters to such investment in order to protect the interests of these groups. Insurance premiums and deposits are not equity capital.

3. When an assessment is made of the investment model employed by CL Financial, one would very likely come to the conclusion that primarily low-risk, short-term capital was employed for high-risk, long-term investment of which a significant portion may have been speculative eg, real estate. This mismatch was obviously a deliberate strategy which constituted a hostage to fortune.

5. It must be borne in mind that CLICO and CL Financial were private companies whose accounts, financial statements, investment programme, and portfolio were not available for public or investor scrutiny.

6. We do not know how much of the foreign earnings of these “cluster of companies spread throughout 35 countries” was in fact repatriated to this country.

7. One may question whether CL Financial over concentrated its local investment in the petrochemical sector and therefore found itself more exposed to a fluctuation in the international prices of petrochemical products.

8. While the sub-prime mortgage debacle and global recession of 2008 would have had a negative impact on CL Financial’s fortunes, especially prices earned on petrochemical products sold overseas, it is more than a suspicion that the management’s misconduct, recklessness, questionable behaviour, and stealth contributed significantly to the financially desperate situation of the conglomerate in January 2009 when it approached the Government for bail out funding.

9. In the House of Representatives on July 1, 2016, PM Rowley made the following statement: “Having perused the Report (Colman on CLF/CLICO) myself, I can advise the population that it contains very serious allegations of criminal misconduct on the part of a handful of privileged individuals who were associated with the CLICO/CLF group of companies.”

Two years ago, the CLICO/CLF Report was referred to the DPP presumably to die a natural death.

10. There is little doubt that the political directorate of the various administrations facilitated the mismanagement by CLICO and CLF directors which brings into question the quality of governance in this country.

Reports of statutory violations and questionable practices at CLICO were ignored. The group was given carte blanche to further concentrate economic power in the country in one entity and increase the risk to the overall economy in the event of failure of this entity.

A prime example was when the Government gave its approval for the owners of the largest insurance company, CLICO, to also acquire controlling interest in the largest local bank—Republic Bank Ltd.

Trevor Sudama

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