The USA is creating a new International Development Finance Corporation with streamlined capacity for investment. It will replace the Overseas Private Investment Corporation and draw together several other US investment initiatives.
The IDFC is supposed to offer one stop for other investment support including technical assistance grants, finance for feasibility studies, development credits, first loss guarantees, debt financing including in local currency which will save currency risks for investors, and political risk insurance.
The bipartisan act was introduced by Senators Bob Corker and Chris Coons, and Congressmen Ted Yoho and Adam Smith. The Better Utilization of Investments Leading to Development (Build) Act passed the House in early August and the non-partisan policy think-tank Brookings Institution says both the House Foreign Affairs Committee and the Senate Foreign Relations Committee strengthened the development aspects xx. “A review of the legislation casts no doubt that the proposed… IDFC.. is first and foremost a development agency.” See the article for more on the structural elements and how it achieves coordination.
The new agency will pull together Overseas Private Investment Corporation (OPIC, the US Government development finance institution), some credit facilities under development agency USAID, US Trade and Development Agency and financing for feasibility studies in emerging markets
According to Aubrey Hruby, writing in the Financial Times: “The proposed IDFC will be OPIC on steroids. It will advance American interests in three critical ways: 1) it will enhance global competitiveness relative to US trading partners; 2) it will support US firms seeking opportunities in frontier markets and 3) it will eliminate institutional inefficiencies.”
Hruby says the new agency double the overall budget from $30 billion to a $60bn cap and will also be able to deploy equity as well as the debt which Opic was allowed to deploy, limiting the range of projects into which it could invest. By comparison, European development finance institutions can deploy contributions of some $10bn a year. In 2015, Chinese President Xi Jinping announced that funds available for Chinese entities in African markets would double to $60bn. It is estimated that total capital flows from China to Africa were between $70bn and $175bn over the decade 2001-2011.
The new IDFC will enable the US to align commercial and development interests and will provide more opportunities in the emerging economies which account for 80% of global growth since 2008. It will be used to mitigate risk and act as a catalyst.
According to Hruby, projects that OPIC invested into supported more than $80bn in exports and created 280,000 jobs. It supports initiatives such as Connect Africa, an initiative to invest $1bn into telecommunications infrastructure in the next 3 years. Opic was also key to helping Bechtel coordinate and develop the Nairobi-Mombasa Expressway Project in 2016. Analysis by the conservative think tank Heritage Foundation says OPIC invested 27% or $6.28bn of its portfolio in Africa, of which half focused on Ghana, Kenya and South Africa.
Audrey Hruby is co-author of the award winning book The Next Africa, adviser to investors and companies doing business in Africa and a Senior Fellow at the Africa Center at the Atlantic Council.