By McPherse Thompson, Assistant Financial News EditorGASSAN AZAN, the entrepreneur who established Megamart, Jamaica's first wholesale shopping club, is putting in place mechanisms to have the company listed on the Jamaica Stock Exchange as he seeks capital to expand the stores throughout Jamaica and other countries in the Caribbean.
The fundraising, to be made through an initial public offer, is not expected until after the opening of a third store in Montego Bay some time next year, but he has already started a campaign to sensitise potential investors about the importance of buying into the multi-billion business.
However, Mr. Azan has, in the meantime, cautioned the Government that it must remove the bureaucratic obstacles and provide incentives, such as tax breaks, to local investors if it wants to create the kind of jobs the businesses have been generating across the country.
Establishment of the first Megamart store has created 250 jobs in Portmore, St. Catherine and Mr. Azan and his partners are set to double that figure when they open Megamart 2, now under construction at Waterloo Road, St. Andrew by October, this year. The company is expected to start construction on a third store at Catherine Hall, Montego Bay in January 2004, possibly establish another store in central Jamaica thereafter and then look to expanding within the rest of the Caribbean region.
FIRST STORE
With the first store already raking in some $1.5 billion in revenue, the Waterloo Road store is expected to bring the combined turnover to well over $2 billion, but Mr. Azan wants to take the revenue stream within the $5 billion mark - with the opening of the third store - before listing on the JSE.
However, Mr. Azan, in underscoring the importance of creating jobs as he addressed investors at a forum organised by Mayberry Investments at the Knutsford Court Hotel, St. Andrew on Wednesday evening, said that although there has been a constant cry for the creation of jobs, the Government was not providing the incentives to do so.
"If the Government wants jobs creation it must have a practical way of incentivising and rewarding same and fast-track it too as a matter of urgency," he said. Lamenting the red tape faced by the business sector, Mr. Azan said "the investors cannot be left to the mercy of the bureaucracy, depending solely on the length of his patience and agility of his brokers and agents."
He reiterated that "if the Government wants jobs, it has to make investment exciting again. It must give the entrepreneur real pride of place with close monitoring and assistance to help get the jobs on-line in the shortest possible time. And from the other standpoint, ensure that jobs promised are delivered."
Mr. Azan, the chief executive officer of Bashco Trading Company and Megamart stores, was speaking under the theme, "Entrepreneurship in Jamaica and the role of the Stock Exchange." Mayberry Investments selected him as the main speaker at its latest in a series of investors' fora against the background of Megamart's intention to raise money in the equities market to assist its expansion plans.
Megamart was opened in 1999 following the establishment of Bashco, a chain of low budget, hybrid wholesale stores across the island, during what Mr. Azan said was the most difficult and challenging time in Jamaica. There are now 12 Bachco stores, employing about 400 people.
Mr. Azan, who was educated at Munro College, St. Elizabeth, Canterbury in England, and later pursued business studies at Boston University and the University of Miami, United States, said that in addition to the 250 full time employees, Megamart provides direct and indirect employment for hundreds of local farmers and producers of goods and services.
He said work is now far advanced on the second Megamart, another 70,000 square-foot building that will offer even more features than the one in Portmore. "There is no question that Megamart has changed the nature of shopping in Jamaica, bringing the services of the grocery, meat mart, clothing, shoes, dry goods, tyre centre, pharmacy and a wide range of consumer services under one roof," he said.
LITTLE ENCOURAGEMENT
However, he said "few people gave us either encouragement or a fighting chance at making it succeed. Hence, financing for Megamart Portmore was 100 per cent equity by the partners. Just imagine we could not find a single financial institution willing to support a venture which, in three years, has become a household name in Jamaica."
Mr. Azan said the consideration to go public was promoted by the reality that the start-up costs for each store would be about US$8 million and it would not be feasible to support that level of debt at current interest rates.
The stock exchange, therefore, provides a means of raising equity to fund the expansion of Megamart throughout Jamaica, the region and elsewhere. "At the same time, we believe this will help to build customer loyalty and encourage a pool of broad-based potential investors," he said.
Mr. Azan said, however, that even as they embrace the stock exchange, "we have some serious concerns, which further underscore the need for a paradigm shift at almost every level of business in Jamaica."
According to the businessman, in various countries worldwide, equity markets can give daily figures about the performance of a particular sector. In the case of the U.S. stock market, data published on the sectors each month provide an indicator of economic performance, which help to inform decisions about the performance of the economy.
"If available in Jamaica, I believe this type of information would make much more productive news," he said, adding that it could help people to better assess the business climate and investment possibilities.
"Sadly, we do not have any such levels of reporting," partly because of the reluctance of businesses to reveal information because of a pervasive, unproductive and seemingly accepted level of mistrust between government and the private sector. He suggested that the regulatory body of the JSE "needs to exert a far more active and dynamic role of the ilk of the Securities Exchange Commission in the United States."
Noting that the stock exchange should be one of the vehicles that drive the engine of growth in the economy, Mr. Azan said the return on long-term equities was far better than cash in the bank, but brokers have not done enough of a selling job to build and broaden their investment base. In the meantime, he said, investors remained trapped in the circle of demand for short-term investment in government paper. "This may be lucrative, but it is completely unproductive as far as developing Jamaica is concerned," he said.
At the same time, Mr. Azan said that as an investor, the lack of trust between government and the private sector has "led to measures and a general modus operandi that are, by design or default, a deterrent to investment.
CURB CORRUPTION
"On the government side, the justification has been to try to curb corruption," he said. "Ironically, the measures, for the most part, have achieved the complete opposite. They have largely served to further burden the genuine entrepreneur with more bureaucracy, for which he has to pay."
Mr. Azan noted that if the true spirit of entrepreneurship was to be preserved, the Government and private sector need to move from being a talk shop, find common ground and seriously create the conditions for investment.
That relationship, he said, must be characterised by concrete and consistent action and follow up to create the wealth and jobs the country so badly needs.
"There are still too many horror stories of goods and raw materials languishing on wharves while the bureaucracy creates every stumbling block to productivity in the name of preventing corruption and protecting the revenue," said Mr. Azan. He added that "in reality, this does nothing more than feed the propensity for corruption and or stifle entrepreneurial energy and spirit."
He cited as an example, "some serious horror stories as we worked against the clock to establish the first Megamart. Nobody seemed to be seized of the value of having an investment of that size, and while we got many kudos when the doors opened, it was bureaucratic frustration much of the way to opening time." And Mr. Azan said that "in establishing Megamart 2, not much has changed."
The businessman suggested that a part of creating the environment for entrepreneurship and investment must be to put in place incentives as well as taking steps to ensure that investors willing to take the risk and create jobs enjoy a fast-track service. "This would demonstrate the commitment of the state to ensuring that the investment will be replicated," he said.
He said that if the bona fide fast-tracking of investment was a reality and applied to sound enterprises, without favour, local or international, that would guarantee repeat investments and reduce the dominance of short-term options.
Mr. Azan also said "the private sector needs to step up to the plate" and "realise that other markets were built because investment was driven by returns, not which government was in power or which is to come."
He said the management of Megamart remained confident about Jamaica and its future and "that is why we are striving to establish Megamart as the premier wholesale club across Jamaica and the Caribbean. However, it would be impractical for us to bear the full risk of such an expansion in a global marketplace. That is why we intend to utilise the Jamaica Stock Exchange as a means of raising capital and we would like to encourage more entrepreneurs with dreams of major expansion to do the same."
