Investment in alternatives better bet than protests

May 28 2008 by Bill Gleeson, Liverpool Daily Post

WHETHER it’s burning tyres on French beaches or protests at Downing Street, it’s doubtful that the haulage industry’s complaints about high fuel prices will make any difference.

After all, western governments are powerless to do anything about it. They don’t have the power to increase the supply of oil to the world’s markets. Even if they could persuade the Saudis and other OPEC members to extract more oil from the ground, constraints on the world’s refining capacity would keep prices high for several years yet.

But OPEC members will never be in a rush to increase production. Looking at things from their perspective, that is no surprise.

There is only a finite amount of oil in the ground. It is in the interests of oil producers to keep the price of a barrel of crude as high as possible for as long as possible, because that way they make the most of their natural asset.

In any case, it is politically difficult for governments to urge more oil production at a time when international agreements oblige us to cut carbon emissions.

Nor are governments likely to cut fuel duties. Hauliers may be lobbying hard for a tax cut, but what is the likelihood that Gordon Brown or Nicolas Sarkozy will defy the growing influence of the green lobby? Good environmental credentials attract a lot of votes these days.

Perhaps we have to get used to the idea that high oil prices are here to stay and that this will, for the next year or so, fuel inflation and put the brakes on global economic growth. The price mechanism will, in time, encourage hauliers to be more fuel- efficient and invest in alternative forms of transport, such as the railways and canals. Indeed, companies like port operator Peel Holdings and haulage group Stobart are doing exactly that. Maybe the rest of the transport industry should take their lead from these two firms, instead of wasting time with futile protests that can only come to nothing.

WELL done, Merseyside Special Investment Fund, for achieving a £6m return on its investment in nutritional products group Vitaflo.

There is an old saying in the venture capital industry about lemons ripening before plums.

The Vitaflo deal, announced yesterday, is the biggest single profit that MSIF has made from the tens of millions of pounds that have been invested in it during the past 12 years, and certainly represents one of the plums.

The return from Vitaflo contrasts sharply with the massive losses run up by many of its other investments, the lemons that have since been written off its books.

Funded with European cash, MSIF was originally set up to invest in local firms that would otherwise struggle to attract backing or survive. MSIF was always going to be a risky venture. However, the scheme was thought justifiable on the grounds that the financial losses would be outweighed by the beneficial economic impact arising from the growth of successful investee companies.

But, around the turn of the century, the emphasis changed. It was feared that no more Brussels cash would be forthcoming for the region, so if Merseyside was to have its own venture capital fund in the future, MSIF would need to generate more commercial returns. Up to yesterday, that change in strategy showed little sign of bearing fruit.

What MSIF needs now is more returns like those made from Vitaflo which would allow it to generate an investment fund for the future.

Hopefully, there is a rich harvest of good deals ahead that can help to secure that legacy.