OPIC creating a new era in development finance

BY KEITH COLLISTER

Friday, May 24, 2019

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ON Tuesday, OPIC's Acting President and Chief Executive Officer David Bohigian visited Jamaica where he met with Prime Minister Andrew Holness, Finance Minister Nigel Clarke, Energy Minister Fayval Williams and Senator Aubyn Hill, as well as the local business community, to promote US investment and discuss enhanced security cooperation in Jamaica and across the Caribbean.

The trip to what Bohigian called the “friendly five”, namely Jamaica, The Bahamas, St Lucia, Dominican Republic and Haiti, was a follow-on to a meeting with the US President and his counterparts from these countries, in March of this year, who were “working on the Venezuela issue” and had a “special relationship” with the US.

Created in 1971, the Overseas Private Investment Corporation (OPIC) is the US Government's development finance institution (DFI's), and currently operates in 90 countries on a self-sustaining basis at no net cost to taxpayers as it charges market-based fees for its products.

It essentially, Mr Bohigian advises, “invented political risk insurance” and allows the private sector to go “where it might not otherwise”.

Unlike many DFI's globally who often have an “export” mandate, OPIC does not “tie” its investments to the purchase of US goods and services, and is meant to target “the most challenging development problems”, including empowering women and small and medium-sized businesses.

In what has become a rare example of bi-partisan consensus, last year on October 5, 2018 the “Better Utilization of Investments Leading to Development Act of 2018” or “BUILD Act” was passed. The Act comes into effect in October of this year, merging OPIC and the Development Credit Authority of US AID to become the United States International Development Finance Corporation (or DFC for short).

The new DFC will no longer require a US partner to make an investment (it will probably still prefer one of course), and will be able to make “equity investments for the first time” rather than just debt investments.

The same Act also increases its capital from US$29 billion to US$60 billion, which traditionally has been able to mobilise more than two additional dollars for every dollar deployed, equivalent, according to the closing speech of Mr Bohigan, to a new “Marshall Plan”.

He added, “OPIC is proud of its long-standing partnership with Jamaica, and remains committed to the country's economic development. Through enhanced engagement with our neighbours in the Western Hemisphere, we will more effectively support growth and security in the region.”

This new development finance corporation will have more flexibility as to who it works with, although it will remain a private-sector financing entity rather than government to government financing entity.

The Act goes on to explain further “financing for high-quality private-sector led development from the DFC and other like-minded bilateral and multilateral development finance institutions will help countries through the developing world sidestep opaque and unsustainable debt traps, and help more American businesses invest in open and developing markets, including in places that are of key strategic importance to the United States”.

According to Mr Bohigian, despite its current focus on energy in the region (Jamaica accounts for close to US$220 million of its over US$250 million regional portfolio, with major OPIC supported energy investments accounting for seven per cent of Jamaica's power supply), OPIC can invest in just about every sector, including hospitals, roads, affordable housing and banks, to name some of the areas potentially more relevant to Jamaica.

Notably, coming out of their trip to Jamaica, OPIC has identified Jamaica's water infrastructure (in some cases between 50 and 100 years old) as an opportunity in line with their experience, as “they have invested in water projects around the world”.

He advices they currently have US$4 billion in investments in more than 40 private equity funds, making them the most important global player in emerging market private equity, and they stand ready to review new plans in this area.


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