Evaluation of the African Management Services Company : final report

Evaluation covers the period 1989-92. AMSCO's first 3 years of operations have failed to fulfill expectations; the erosion of its capital base due to heavy operating losses from $9 million in 12/88 to $3.3 million projected for the end of 1992 reflects this underperformance. The 13 projects contracted by AMSCO by 7/92 were substantially fewer than the 26 targeted for the fiscal year ending 12/91, and while recent efforts to secure additional business seem successful, with up to 20 contracts expected to be signed by the end of the year, the shortfall has reduced and delayed the effectiveness of the project, and contributed to accumulated losses and equity erosion. On the positive side, AMSCO has provided quality management personnel and training programs to 13 private, or to be privatized, enterprises, with generally good results. While some projects have been discontinued for lack of progress, the cause was not the lack of quality of AMSCO programs, but the unwillingness of the company's directors or host government to fulfill the requirements of the business plan established at the start of each AMSCO project. AMSCO can take pride in the fact that approximately seven of the companies that have been assisted have considerably improved their operating performance and seem to be achieving their objectives. This modest success was achieved at a net cost to AMSCO of over $7 million, but the future flow of earnings should restore the equity and reduce average project costs. The principal reason AMSCO has failed to meet planned targets was its significant departure from the strategic plan laid out in its founding documents. The Project Paper clearly states that AMSCO is a subcontractor to the International Finance Corporation (IFC). As such, it depends on the ability of institutional investors, led by the IFC, to identify projects for AMSCO. The institutional investors, however, for the most part, failed to refer projects to AMSCO. As a consequence, AMSCO experienced great difficulty selling its services to African enterprises, because it was a new institution and lacked credibility and an established reputation in the business of managing African enterprises. As a result of these problems, the Board of Directors appointed a new Managing Director, whose plan to reverse operating losses and renew AMSCO's relationships with its private and institutional shareholders appears to be working; there is a reasonable prospect that AMSCO can break even during 1993. The new AMSCO projects seem to be of higher quality and have greater institutional investor support than many of the earlier ones. Indeed, several give every appearance of being excellent private sector expansions for the countries involved. A key lesson learned is that, as an institution, AMSCO has three critical dependencies: on institutional investors to refer projects; on private corporate shareholders to provide technology and market expertise for its projects; and on its donors, mainly the UNDP, to provide the concessional resources it can channel to African client firms. Recognizing these dependencies, the Board of Directors and the IFC should review with AMSCO its fundamental strategy, with emphasis on the following elements. (1) By what criteria will AMSCO focus its resources and efforts? Profitability? Institutional shareholder priorities? (2) Is AMSCO to provide its flow of subsidies to any applicant, or only to selected companies? If the latter, what should be the criterion of selection? (3) Are the commitments by the institutional investors and the private shareholders sufficient to justify optimism about AMSCO's viability? (Author abstract, modified)