Real Economic Development

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This week Wal-Mart announced that they have launched an investment fund specifically targeted to minority and women-owned businesses. This innovative solution will help these types of companies grow through mergers and acquisitions. "Even though small businesses are one of the fastest growing sectors of the economy, access to capital remains a key barrier to growth for women and minority-owned businesses," said Jay Fitzsimmons, senior vice president of finance and treasurer, Wal-Mart Stores, Inc. "By creating this fund we help fill a significant void and can have a positive impact on those businesses that are ready and able to move to that next level of national and international distribution for retailers."

Although Wal-Mart has taken their hits in the PR department over the past couple of years due to the
debatable impact of some of their business practices (even as it relates to the impact on local small businesses), they may have hit a homerun with this one - at least as it relates to small business development. Key tenants of community and economic development includes business development and job growth. If there are no mechanisms and financing to make this happen, economic empowerment for the lower class will just be a pipedream.

According to
NAIC, although minorities account for 30 percent of the U.S. population, less than 2 percent of all venture and private equity funds are invested in minority companies. There are many quality small businesses out there that could expand much further beyond their current capacity and capabilities - if they had access to capital. This scenario has to change dramatically if we as a society are truly committed to seeing communities come out of poverty and everyone having an opportunity to be economically empowered. Those with the means to do so must put their money where their mouth is and make these kind of investments the norm and not the exception.

What should incent investors is the fact that investing in these companies is not like they are just blindly throwing money away. The investments must be prudent and strategic so that they can earn a return like they would with any other investment target. What should create even more of an attractive investment environment is the fact that minorities are starting businesses faster than any other segment of the population. Over the past several years, the growth rate for minority firms has exceeded those of all U.S. firms, both in the number of firms and revenues. Between 1992 and 1997, the number of minority-owned firms increased 29.6 percent, as compared to 3.9 percent for all U.S. firms. In 1997, there were more than 3 million minority firms. Of these, 84,000 have revenues in excess of $1 million and many are in high-growth industries, such as technology and health services. Businesses of this size, representing 55 percent of the jobs and 65 percent of the revenues of minority firms, are an important component of local and regional economies and of overall U.S. economy (Source: Minority Business Development Agency).

This could be a gold mine for many investment and venture capital firms, as well as corporations that are looking to bolster their supply chains and impact their communities through their supplier diversity programs.

Wal-Mart has shown some leadership in this area. Now the question is will other major corporations follow their lead?

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