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On the Overseas Private Investment Corporation

Arguments for and Against the Overseas Private Investment CorporationSince the Trump administration has taken office, the International Affairs budget has come under attack. Among the many potential items to be cut, the Overseas Private Investment Corporation (OPIC) has been singled out by the administration as a particularly unnecessary agency.

As a result, a slew of arguments for and against the Overseas Private Investment Corporation have been published in recent months. This article is an attempt to provide clarity about the role of OPIC and suggest that its overall benefits outweigh its costs.

Established by President Nixon in 1971, OPIC provides loans and political risk insurance to private American companies seeking to invest in developing countries. Developmental financing was conceived as a complement to governmental aid insofar as it facilitated the transference of private capital to developing economies.

Critics of OPIC often argue that, as a public institution, the agency crowds out private banks that should, in theory, be more efficient financiers of international development.

The truth is that, although a robust private market for developmental finance exists, private capital oftentimes averts especially risky and poor countries due to the inevitably high premiums and interest rates.

OPIC, on the other hand, is in a unique position to support investments in these countries.

With the backing of the U.S. government, OPIC has been able to recover over 90 percent of its political risk claims. This fact has allowed the agency to offer affordable loans and political risk insurance in countries deemed too risky by private finance institutions.

Other critics of OPIC claim that it represents a form of “corporate welfare,” citing the fact that the agency gives loans to some of the largest U.S. firms, like J.P. Morgan, Citibank, and Wells Fargo.

Although all American firms are welcome to apply for financing, year after year, more than half of OPIC’s commitments go to small- and medium-sized businesses.

Even if one remains unconvinced about the benefits of OPIC, it is important to recognize that the agency imposes virtually no cost on the U.S. government. While OPIC does require federal backing to insure its $20 billion worth of outstanding loans, the agency has been self-sustaining for almost four decades. In fact, it has used its interest receipts to contribute nearly $4 billion to U.S. deficit reduction.

In the end, while there are many arguments for and against the Overseas Private Investment Corporation, the truth is that the agency has a net positive effect on American firms and developing economies alike.

– Nathaniel Sher

Photo: Flickr

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U.S. Commitment to Increasing Access to Electricity in Africa

U.S. Commitment to Increasing Access to Electricity in Africa
Over one billion people around the world still have no access to electricity. Statistics show a direct correlation between low energy use and low Gross Domestic Product. Through developing energy grids in Africa, Latin America, Asia and the Middle East, these regions would see phenomenal economic, educational and humanitarian benefits.

What parts of the world are in most need for energy grid development projects? The most significant deprivation is in sub-Saharan Africa, where at least 50 percent of the population in the majority of countries are without electricity access. A total of 94.7 percent of the populations Liberia, South Sudan, Central African Republic, Chad, Sierra Leone and Malawi do not have electricity.

In Asia, 622 million out of the population of 3.6 billion still have no access to electricity. Half of those individuals live in India, where 304 million or 24 percent of the population lacks access to electricity. Smaller countries are affected as well. Seventy-three percent of North Koreans, 32 percent of Pakistanis, 40 percent of Bangladeshis, 69 percent of Burmese people and 67 percent of Cambodians have no access to electricity.

The Middle East is an outlier due to its vast wealth of petroleum resources. Out of the one-tenth of the population that has no access to electricity, 80 percent live in Yemen, which is currently experiencing a deadly civil war.

In 2015 the United States Congress passed the Electrify Africa Act, which aims to address energy poverty throughout the continent by prioritizing energy projects within our development finance agencies such as the U.S. Agency for International Development, the Overseas Private Investment Corporation and the Millennium Challenge Corporation. This monumental new law will streamline the approval process for the financing of energy-related projects in Africa, potentially lifting millions out of energy poverty.

– Josh Ward

Photo: Flickr