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FOR IMMEDIATE RELEASE For further information, contact: PETER
S. WATSON Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to appear before you today to discuss OPIC’s FY 2003 budget request and to outline our vision for OPIC that will promote genuine developmental investment abroad and job creation at home, while complementing the capital flows of the private sector and contributing in a meaningful way, to the foreign policy goals of the United States. No other American public or private organization invests in developing countries with the scope and focus that OPIC does. OPIC can operate in more than 140 countries — financing economic development projects large and small and mitigating economic and political risks. Over the agency’s 31-year history, OPIC has supported $138 billion worth of investments in 3,000 projects from Algeria to Zimbabwe. These same projects have generated $64 billion in US exports and created nearly 250,000 U.S. jobs. The activities of these projects are diverse and include (but are not limited to) communications operations, power plants, mining operations, tourism/hotel projects, gas pipelines, manufacturing plants and agriculture operations. As you know, OPIC accomplishes this mission at no net cost to American taxpayers. Over its history, OPIC has built up reserves of over $4 billion and has recovered over 94 percent of total insurance claims settled. With this distinguished record in fostering economic development abroad while helping to strengthen the U.S. economy at home, I was frankly enthusiastic when President George W. Bush asked me to serve his administration as president and CEO of OPIC. Over the past nine months, it has been my privilege to lead the agency and its impressive team of committed professionals. The
world has changed significantly since OPIC was founded more than three decades
ago, but our mission has not: “To
mobilize and facilitate the participation of United States private capital and
skills in the economic and social development of less developed countries and
areas, and countries in transition from non-market to market economies, thereby
complementing the development assistance objectives of the United States.” Our
objective since coming to OPIC has been to align our products and services in a
manner that supports OPIC’s statutorily-mandated mission, while also
recognizing a robust and growing private market that has developed since
OPIC’s founding. As
such, we have concentrated on five broad areas: 1) refocusing OPIC on its core,
developmental mission, 2) rededicating our commitment to small business, 3)
invigorating our risk mitigation activity to ensure superb financial management
as we focus on more developmental projects, 4) ensuring that OPIC’s products
are complementary, not competitive, with the private sector, and 5) utilizing
OPIC’s unique ability to mobilize American private capital to support US
foreign policy objectives, especially in the dramatically changed landscape
since September 11th. Moreover,
we are pursuing these objectives in a manner that can measure demonstrable
results and outputs, not simply inputs. Development
Mission Again,
I have begun my stewardship at OPIC by working to strengthen the agency’s
consciousness of its historical developmental mission.
We look to assess the investments that OPIC ultimately supports by more
than simple dollar flows; that is, to critically examine and benchmark the added
value of a particular investment to the host country, or as we say, to assess
the additionality the project
represents. Our goal is to ensure that OPIC’s participation “adds value” by measuring the extent to which there is a market failure, the degree to which OPIC can leverage its resources for a broader economic impact, and the extent to which the project in question contributes to the overall economic development of the host country. Our ability to refocus on the developmental nature of our projects is made possible in part by the growth and success of private market financing and insurance mechanisms. This growth allows OPIC, with its unique strengths as a government agency, to complement the private markets by working in countries that the private sector would otherwise not participate. The
challenge in attempting this is not static. The type of investment that is
effective in one country may not provide the same balance of costs and benefits
in another. What works in one phase
of a country’s economic development may not be as effective in other
circumstances. OPIC is currently working to develop effective benchmarks and
criteria to assess the developmental impact of OPIC supported investment in the
future. Small
Business Both
overseas development and U.S. economic growth are increasingly dependent on the
vital role of the small and entrepreneurial business sector. OPIC’s
management and staff are committed to improving the access of U.S. small
businesses to OPIC’s programs. By
streamlining OPIC’s application process and publicizing OPIC’s political
risk insurance and finance products, OPIC will continue to make progress
regarding this agency priority. Despite
its small staff, OPIC has done remarkably well in reaching out to small and
medium-sized (SME) businesses, which constitute a growing percentage of project
participants. Of the 37 new
insurance and finance projects that OPIC supported in FY 2001, approximately 57
percent (21 projects) involved American small businesses.
In addition, thousands of SMEs participate as suppliers to OPIC-supported
projects. However,
we can do better. Therefore, one of
my first actions at OPIC has been to establish a historic agreement with the
U.S. Small Business Administration (SBA). While
the SBA is a great resource for small businesses seeking to establish themselves
or expand in the United States, the SBA’s ability to provide assistance ends
at the border. Because the SBA
cannot assist small businesses in developing countries, there is an ideal
opportunity for OPIC to partner with the SBA in a mutually beneficial manner
that would advance the achievement of both agencies’ missions.
Most importantly, such cooperation would greatly assist American small
businesses seeking to establish a presence in developing regions.
Small businesses often do not meet the profile that private sector financial institutions and insurers are looking for in their overseas clients. This is where the development goals of the United States government, the needs of small business, and OPIC’s programs intersect. With OPIC’s assistance, the proven dynamism of U.S. small businesses can be mobilized to produce viable projects in the developing world. Risk
Mitigation I
recognize that using our resources to support more developmental projects may
pose some added risks. This means that OPIC continually must improve its
understanding of and capacity to manage risk.
Toward that end, I am strengthening the risk management function at OPIC
by bringing in new staff resources and technology to better manage OPIC’s
exposure on both a portfolio and a project level.
I also am exploring how OPIC’s policies on corporate social
responsibility and its agreements with host governments can further reduce risk.
While
some of the risks that OPIC faces can be readily identified as political or
commercial in origin, other sources of risk may arise from unintended
environmental and social impacts. With
guidance from the U.S. Congress and successive administrations, OPIC has
exercised leadership in finding ways to promote economic and social development,
while at the same time protecting the environment, workers rights and human
rights in developing countries. OPIC’s
leadership in this area has been recognized by other official and private
lenders and insurers that have come to see the value of integrating
environmental and social considerations into their lending and insurance
policies. Now that the private
markets have “gotten the message,” many private companies are going beyond
the requirements of law and are taking proactive measures to enhance their
relationships with local communities. Exercising
leadership in this area means that OPIC must strive to learn from the best
practices of the most progressive companies, and to use those practices in its
approach to issues of corporate social responsibility.
The practice of corporate social responsibility is an integral part of
risk management. As part of the
reallocation of OPIC’s staff resources, I have combined the risk management,
environmental and labor rights, and economic analysis and project monitoring
units into a new office headed by a vice president for investment policy.
This office will have the same status as OPIC’s product divisions. Complementarity The
President’s FY 2003 budget submission noted that, “OPIC also will implement
new procedures to direct its activities toward filling important gaps in the
private market and not undercut private finance or insurance.”
This follows guidance contained in the FY 2002 budget that said,
“OPIC’s activities should focus more closely on companies and countries that
cannot access private financing or insurance…and make OPIC’s programs
complementary, not competitive with the private market.” OPIC
recognizes that the private sector is in the best position to recognize and
respond to business opportunities and risks in developing and emerging markets.
OPIC therefore needs to work in tandem with private business to leverage private
sources of financing and insurance to the maximum extent possible, while
functioning as the “market of last resort” for projects that private
investors and insurers would not or could not support on their own.
To
enhance OPIC’s cooperation with the private market, we have taken steps to
create a new working relationship with the private market which replaces
competition between OPIC and private insurers, with one of complementarity.
OPIC needs to do things that the private market will not, such as
offering more tolerance for higher risk countries or projects, longer tenure, or
larger per project capacity, which will help fulfill our development mandate,
but to do so by accepting only prudent financial risk, as OPIC has consistently
practiced over its history. To
that end, we will continue to hold extensive consultations with insurers,
investors and other stakeholders to work toward facilitating a complementary
program with the private market. This
new relationship will help to fulfill OPIC’s responsibility to find avenues
for cooperation with the private market. It
will respond to OPIC’s need to complement, not compete with, the private
sector. And it will provide an
opportunity to refocus our activities to better reflect our mission by helping
to mitigate risk and support investment in the emerging markets. In other words, everyone will win. Foreign
Policy Objectives In achieving its mission to mobilize and facilitate the participation of United States private capital in the economic development of developing countries, OPIC places special emphasis on countries and regions that have been identified as foreign policy priorities, especially since the events of September 11th. During the White House visit last fall of Indonesia President Megawati, President Bush announced a joint trade and finance initiative developed by OPIC, the U. S. Export-Import Bank and the Trade Development Agency (TDA). This cooperative undertaking made available up to $400 million in financing to promote trade and investment opportunities in Indonesia, with OPIC and Ex-Im Bank focusing on projects in the oil and gas sector. In fulfillment of this commitment to Indonesia, OPIC recently approved support of up to $350 million in financing for two offshore oil and natural gas projects in Indonesia. The projects, which will yield an estimated 145 million barrels of oil, are sponsored by California-based Unocal Corporation. The projects demonstrate U.S. investor confidence in the stability of Indonesia and its reform efforts. The projects will generate approximately $200 million in procurement in Indonesia, as well as roughly $66 million in procurement in the United States. In October 2001, OPIC announced a $300 million line of credit, available to U.S. companies contemplating investments in Pakistan. A February visit by a joint U.S. Government delegation made up of representatives from OPIC, Export-Import Bank and TDA returned from a successful mission to Pakistan to promote private investment and trade opportunities. OPIC is presently considering projects in the oil and gas sector, power generation and financial services that will help fulfill a commitment to boost private sector economic development in Pakistan. As part of the U.S. commitment to the economic reconstruction of post-Taliban Afghanistan, OPIC co-hosted the first high-level discussion of U.S. private sector involvement in Afghanistan, assembling more than 40 Afghan-American business leaders and senior U.S. officials to outline investment opportunities in the war-torn country. This preceded the establishment an initial $50 million line of credit to support U.S. investment in that country. Post-Taliban Afghanistan will require not only humanitarian assistance, but private capital flows as it rebuilds its economy and economic institutions. Economic growth generated by investment stands to be the most sustainable and diffuse – two outcomes certainly we all support. In addition to on-going activities in support of private investment in these countries, OPIC is also working in Africa, the NIS, Central America, and the Balkans; important regions desperately in need of the development benefits of private investment. In Sub-Saharan Africa in particular, OPIC has a portfolio of projects involving tourism, financial services, construction and manufacturing. We are currently reviewing new projects in mining, power and other energy services. We are also committed to a
housing initiative in Africa. OPIC is working to support a secondary mortgage
market in South Africa, which, with its highly developed financial
infrastructure and successful housing construction program, is a logical place
for OPIC involvement, and that of American private sector housing expertise.
OPIC will look for an opportunity to support projects that will
institutionalize a secondary mortgage market in South Africa that in turn could
form a solid foundation for further economic development.
I will advance this initiative in my trip to Africa next month with
Assistant Secretary of State for African Affairs Walter
H. Kansteiner, III, visiting several sub-Saharan African countries. Overview OPIC plays an uncommon and indispensable leadership role in developing emerging markets, expanding global commerce and fostering democratic values worldwide. The unprecedented events of 2001 brought a fresh relevance to our work. People who have the economic and social opportunities that lead to prosperity may be less likely to join extremist movements or engage in violence than people without these opportunities. A comprehensive defense against terrorism, then, includes investing in the developing countries that may harbor them and forging strong, positive bonds with those nations ready to move forward. For 30 years, this has been our core mission. Clearly, it matters more than ever in today’s uncertain times. In 2001, we sharpened our focus, renewing our commitment to economic development in places where it makes a profound difference to human welfare. We are well positioned to strengthen this impact in the future. Our work is well aligned with U.S. economic, foreign, environmental and labor policies. OPIC is good for the world and good for America. In FY
2003, OPIC will continue to refocus its efforts on providing support to U.S.
private investments in locations and sectors where the developmental impact will
be greatest. OPIC’s emphasis will
be on ensuring that its participation in an investment contributes to
improvements in host country employment, infrastructure, and best business
practices — including promoting free markets and rule of law and encouraging good
corporate citizenship by sponsoring U.S. interests. OPIC’s commitment to focus on countries and sectors that
are more highly developmental and cannot obtain commercial support will mean
that OPIC will shoulder more risk. Its
capacity to do so will rest on its diverse portfolio of projects, on proven
management practices that mitigate risk, and on the development, where
appropriate, of new financial products that will leverage U.S. private
investment in areas of high developmental priority.
OPIC will use its unique position to become a policy leader and innovator in the area of risk mitigation. To that end, OPIC will work with the private sector, other U.S. government agencies, and international institutions to improve and better integrate best risk management practices into overseas investment. Because good corporate citizenship substantially mitigates systemic risk, OPIC policy will be to integrate corporate citizenship into its overall risk mitigation strategy. In addition, OPIC will continue to maintain strong portfolio management, operate in a self-sustaining manner, and support jobs and growth at home. Regarding this last point, OPIC will work to strengthen its analysis of the impact of OPIC-supported projects on the U.S. economy. FY 2003 Budget Request OPIC contributes to important U.S. government developmental goals, both at home and abroad, and does so while operating on a self-sustaining basis, at no net cost to the American taxpayer. OPIC does not receive direct appropriations, but instead receives authority to spend its own earnings. These earnings are also the basis for OPIC’s contributions (in the form of net negative budget authority) to the Function 150 international affairs account (estimated $227 million available for other international programs in FY 2003). For FY 2003, OPIC requests the authority to spend $40.7 million of its revenues for administrative expenses. This includes $39.9 million for baseline administrative needs and $0.8 million as part of a government-wide change that corrects a long-standing understatement of Federal retiree costs. In FY 2003, OPIC is also requesting $24 million from OPIC revenues for credit funding that will support approximately $800 million in direct and guaranteed loans. This is the same credit funding level as enacted in FY 2001. The FY 2003 request is for a limitation on amounts to be transferred from OPIC’s revolving fund rather than for a direct appropriation. OPIC will source its credit funding and administrative expenses from its revolving fund. This method of funding is consistent with past practice and with OPIC’s statutory authority to operate as a self-sustaining government corporation and use its own earnings to fund its programs. Program Results OPIC provides financing and political risk insurance to mitigate the risks faced by U.S. investors in emerging markets and developing economies where private support is generally not available. Insurance is available for up to 20 years for new investments in new projects or expansions of existing projects. OPIC protects against the risks of inconvertibility, expropriation, and political violence. OPIC provides financing to U.S. companies, or companies with significant U.S. management involvement, in the form of direct loans and loan guaranties with medium- to long-term repayment terms. OPIC also supports long-term, private direct equity funds that invest in new, expanding, or privatizing companies in emerging and developing market economies. All OPIC-supported projects must be financially sound, promise significant benefits to the social and economic development of the host country, and cause no harm to the U. S. economy. Projects must also avoid major or unreasonable environmental, health and safety impacts and comply with OPIC's statutory requirements with respect to internationally recognized worker rights. OPIC makes a strong contribution to American foreign policy and economic goals. OPIC’s contribution to foreign policy goals includes promoting broad-based economic growth in developing and transitional economies, increasing global economic growth, and opening foreign markets to the free flow of goods, services, and capital. As of September 30, 2001, OPIC is managing a portfolio of 133 active finance projects and 253 active insurance contracts. OPIC also contributes to the accomplishment of the U. S. Government’s international affairs goal of opening political systems and societies to democratic practices, the rule of law, good governance and respect for human rights, and to the U. S. international affairs goal of securing a sustainable global environment in order to protect the United States and its citizens from the effects of international environmental degradation. These goals are in keeping with OPIC’s policy of making good corporate citizenship a key element of responsible risk management. For example, by adhering to recognized labor and environmental standards and anti-corruption laws, foreign investors are taking important steps towards avoiding significant problems over time. The likelihood of unforeseen difficulties can be further minimized if projects take an active role in the well being of host communities by recruiting and training local citizens for professional and management positions, contributing to local education and health needs, and maintaining transparency through the maintenance of community outreach programs. While each individual project has the flexibility to address its corporate citizenship role in a manner that best meets the local situation, OPIC will continue to ensure that the projects it supports meet its core statutory requirements. Ultimately, good corporate citizenship is a long-term risk mitigation strategy that serves OPIC, the investor, and the host country equally well. Many of the projects that OPIC supports become valued participants in the well being of their host communities. One typical example of good corporate citizenship is a power plant in North Africa that OPIC has supported with financing since 1996. Besides generating —on any given day— up to half of the electricity in its host country, this OPIC-supported power plant has made a positive contribution to its local community by building and supporting several schools and providing access to its ambulance and medical facility. The plant also sets the standard in the host country in the treatment of waste. Far from being an exception to the rule, the civic involvement this power plant displays is typical of the efforts large, OPIC-supported infrastructure projects make in their host communities. In addition to generating developmental benefits and promoting corporate citizenship as a valuable risk mitigation tool, OPIC’s goal is to generate additionality on every transaction. “Additionality” means that OPIC will ensure its participation “adds value” to every investment it supports. In a practical sense, this means that OPIC will make developmental projects possible by bridging gaps when sufficient financing and political risk insurance are not available from the private sector, by leveraging resources so that additional private and public sector dollars are attracted to developmental projects, and by using its unique position to mitigate project risk. The 37 new projects that OPIC facilitated in FY 2001 are expected to provide significant benefits for U.S. exports, balance of payments, and employment. During the first five years of operation, the projects will generate an estimated 16,000 person-years of direct and indirect employment for U.S. workers, equivalent to approximately 3,200 U.S. jobs. A substantial portion of the initial procurement for OPIC projects will be supplied by American firms, resulting in U.S. exports of capital goods and services of approximately $1 billion during the next five years. OPIC
also pays special attention to the needs of American small businesses. As noted previously, of the 37 new insurance and finance
projects that OPIC supported in FY 2001, approximately 57 percent (21 projects)
involved American small businesses. This
is a commendable achievement. However,
OPIC has yet to fulfill its potential in this area and we are working on it as
indicated earlier. OPIC will streamline and improve business procedures. Finally, OPIC’s management and staff are committed to increasing responsiveness to stakeholders and streamlining business processes. By streamlining OPIC’s application process and publicizing OPIC’s political risk insurance and finance products, OPIC will continue to improve its efficiency and effectiveness. Minimizing red tape and providing responsive service to all who have an interest in the agency’s operations is one of the critical links in OPIC’s efforts to leverage its funding into viable projects. Towards this end, OPIC will: · Be responsive to the needs of clients and stakeholders. Through customer surveys and hosting annual client conferences, OPIC will explore new ways to improve communications with its clients and stakeholders, both in formal and informal contexts. · Streamline application processes. One of the most effective ways that OPIC can improve its ability to leverage investment is by eliminating bureaucratic procedures. By streamlining its paperwork requirements and adopting electronic processes, OPIC will be better able to serve American businesses —both large and small— that cannot afford a long and expensive application process that is not geared to the faster pace of decision making that is required today. · Measure Results. OPIC will develop and implement measurements that assess results and outputs, as opposed to inputs, thereby offering a more effective way to gauge our progress in serving the taxpayer. Conclusion Looking ahead, OPIC’s
activities will continue to refocus more closely on development and companies
and countries that have difficulty accessing private financing or insurance.
Working together, we can
develop OPIC as a foreign policy program focused on development that is making
an important difference to people in developing countries while promoting
American business. I
will be pleased to respond to your questions.
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