A crisis is an opportunity

Argentina and the Ivory Coast

I found a story about doing business in Argentina in Inc. Magazine during and after the 2001 crisis.  There are a lot of parallels with the Ivory Coast, but one big difference in that Ivory Coast has a stable currency (except for the 1994 devaluation) whereas Argentina does not.

On the day his country exploded, Santiago Bilinkis stayed at home and watched the riots on television with his wife and infant son. It was painful. In Buenos Aires, one of the world’s great cities, looters were attacking grocery stores. Bilinkis’s bank account—along with every other account in the country—had been frozen by executive decree three weeks earlier. Argentina was out of money.

This was December 20, 2001, a Thursday. That afternoon, several people were killed by police in front of the executive office building, known as the Pink House, and President Fernando de la Rúa resigned and fled the capital in a helicopter. In the days that followed, Argentina would cycle through four more presidents and default on debts totaling $155 billion.


But although Argentina talks and walks like a European country, its style of doing business is distinctly Third World. The country ranks 115th on the World Bank’s Doing Business index and 138th on the Heritage Foundation’s Index of Economic Freedom, thanks to a tangle of taxes, tax credits, subsidies, prohibitions, exemptions, and delays. These rules change constantly, aren’t enforced uniformly, and are forever subject to bending or breaking if a bribe is paid. And almost everybody pays: Transparency International ranks Argentina 105th in terms of corruption, worse than famously corrupt countries such as Mexico, Egypt, and Liberia.

Sounds very familiar. Ivory Coast under Gbagbo (who unlike de la Rua didn’t have a helicopter to flee with) ranked 169th (out of 183) on the World Bank’s Doing Business index and 122nd (out of 183) on the Heritage Foundation’s Index of Economic Freedom.

A few excerpts from the Heritage Foundation’s piece on the Ivory Coast:

Bureaucracy, ad hoc tax policy, corruption, and burdensome contract enforcement inhibit investment. […] Despite land reform, freehold tenure outside of urban areas is difficult, and most businesses opt for long-term leases. Expropriation of property by the government has not been a problem, but there have been instances of poor protection against expropriation by private parties.

The judiciary is constitutionally independent but slow, inefficient, and subject to executive branch, military, and other influences. Judges serve at the discretion of the executive, and some are open to bribery. Outside of urban areas, traditional property rights of villages and ethnic groups prevent the sale of land.

Corruption is perceived as pervasive. Côte d’Ivoire ranks 154th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. Domestic laws and regulations to combat corruption are neither generally nor effectively enforced. Government corruption and lack of transparency affect judicial proceedings, contract awards, customs and tax issues, and the accountability of security forces. Racketeering by security and defense forces is often denounced in the media and receives wide attention from the authorities and the population.

Also the part about access to finance in Argentina from the Inc. Magazine story sounds like it could have been written about the Ivory Coast:

The single biggest one—and the most obvious way that Argentina is much, much worse off than America—has to do with money. Argentina does not have a modern financial system. Business credit is nonexistent. Only businesses with many years of operating history can qualify for things such as lines of credit or overdraft privileges. Small-business loans are extremely unusual, and it would be crazy to tap credit cards for operating capital: They have low limits and interest rates of up to 45 percent. “It’s hard to explain it to Americans, but there is no financing in Argentina,” says Patricio Fuks (pronounced fooks), a co-founder of Fën Hoteles. “There are no seed investors. The stock market is so small that if you invested a million dollars, you’d move the market.”

Starting a hotel business during a crisis

Still despite all of the above this Fuks guy managed to start a hotel business during the Argentinian crisis with a very small starting capital. His story is quite inspirational:

I met with Fuks in his palatial office in Buenos Aires. Dressed like a nightclub promoter—a black suit and a black T-shirt—Fuks told me his entrepreneurial story with a mix of pride and genuine wonder that it had even happened. In a span of eight years, he has built a group of 34 four-star and five-star hotels in six Latin American countries, under the brands Dazzler and Esplendor. Together, the hotels, which charge roughly $100 a night per room and take design cues from Starwood’s W hotel chain, account for $40 million in annual revenue and employ 700 people. […]

But by 2001, the advertising work started drying up, and in November of that year, Fuks closed his agency. On December 20, the day the rioting started, Fuks and his wife boarded a ferry to Uruguay. They spent New Year’s Eve there, then traveled to Costa Rica and then to Miami. Fuks considered getting a job in Miami, but he couldn’t stomach the idea. “I didn’t know what to do,” he says. “But I was just thinking: A crisis is an opportunity. What’s my opportunity?

Fuks had $25,000 in cash, which he then used to pay off the $200,000 mortgage he had taken on his apartment in 2001. (The devaluation of the peso brought the value of his mortgage down to $50,000, which he was able to pay off by buying bank bonds at a 50 percent discount.) He then scraped together $40,000 from three friends—an enormous amount of money in Argentina in 2002. “Raising $40,000 would have been like raising a million today,” says Alejandro Frenkel, Fuks’s co-founder and Fën’s current CEO. After making a few calls to hotels that had closed over the past year, Fuks found a hotel owner willing to rent him a four-star establishment, the Bisonte, for just $5,000 per month. Labor costs were low, too: The going rate for a hotel manager was just $400 a month. (Today, it’s $2,500 a month.) “I figured that if we could rent rooms for $25 at 75 percent occupancy, we’d make $30,000 a month in profit,” Fuks says.

Fuks renamed his hotel the Dazzler—he thought the name would appeal to foreign tourists—and ended up renting rooms for just $14 a night. Even so, the hotel was immediately profitable, and Fuks used the earnings to rent another hotel and then a third. By the time the crisis was over, in 2003, Fën was managing five hotels. “It was an amazing time,” he says. “I was getting all these hotels. I knew I was never going to see this in my lifetime again.” Armed robberies were a monthly occurrence, but Fuks would simply take the loss and keep expanding.

This happened all over Argentina, on scales large and small. The crisis gave entrepreneurs with money the chance to buy assets and hire staff at a fraction of the precrisis cost. “For the top 1 percent of us, the crisis was great,” a serial entrepreneur told me. “We had money, our savings were not in the banks, and we were paying one-quarter the salary. Of course, for people with salaries, it was horrible. It was very sad.”


A few days after I return to the United States, I meet up with Patricio Fuks, who has come to New York City to pitch American investors on a $25 million real estate fund he is starting so he can build more hotels in Latin America. As we drink beer in a glitzy rooftop bar, he complains that American investors seem more interested in putting their money in exotic financial instruments than in tangible assets like hotels. “Every guy I meet is a hedge fund guy,” he says. “A hedge fund guy is like an astronaut to me. I don’t understand how they make money.”

He tells me that if he were a reader of Inc., he would be trying to sell products to the developing world—Argentina or Brazil or Peru—where there is still demand for the basic things a society needs to function. You don’t need to be a hedge fund guy to make money in Argentina; you just need to look around and see what’s missing. Hotels, for instance. “Americans don’t look abroad,” he complains.

Hotel Dazzler Libertad in Buenos Aires

Now, I doubt it’s possible to make money out of renting hotels in the Ivory Coast, but the Ivorian crisis and the ending of it, has – I believe – opened up opportunities just like in Argentina.

For instance, the Ivory Coast has plenty of hotels and other facilities to cater for tourists along the coast, and they have been mostly empty for almost a decade now.  I’m pretty optimistic that this really is the ending of the crisis, and that tourism will return, but I can see someone who have had practically no clients since 2002 having a different perspective.  Thus it’s probably still possible to buy tourist-related facilities on the cheap.


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