Guest Post: Daniel Haberly

The OPIC: An American SWF?

By Daniel Haberly, Clark University

Thank you, Ashby, for inviting me to contribute to this blog. The purpose of this entry is to bring to the attention of readers and briefly discuss a little-known US federal agency, which has interesting implications for conceptual and normative debates around SWFs. The agency in question is the Overseas Private Investment Corporation, or OPIC. The OPIC is a development finance corporation created during the Nixon administration as a market-oriented alternative to conventional development aid. OPIC has a complex mandate. It’s principle mission is to “mobiliz[e] the U.S. private sector to advance U.S. foreign policy and development initiatives, “make[ing] a difference [in host economies] by expanding economic development, which can encourage political stability and free market reforms.” In addition to this, OPIC is charged with generating direct spillover benefits to the US economy, “help[ing] U.S. businesses of all sizes to compete in emerging markets and meet the challenges of investing overseas when private sector support is not available.” This in turn stimulates American export and job growth (OPIC claims to have supported $72 billion in US exports, and 273,000 American jobs). Most importantly, OPIC must “operate on a self-sustaining basis, at no cost to the American tax-payer,” by charging “market based fees for its products.”

OPIC fulfills its mandate by providing a combination of loans, loan guarantees, and risk insurance to US (or predominately US-owned) corporations investing in designated foreign countries. As of 2009, OPIC had an outstanding loan portfolio of $800 million, on which it earned interest of slightly over $100 million (a very decent return!). In addition, it had an exposure of $7.9 billion in outstanding loan guarantees, and risk insurance. OPIC’s balance sheet is stabilized by just under 5 billion dollars in US treasury security holdings (see OPIC 2009 annual report).

In addition to directly supporting key projects, OPIC financing supports the creation of private equity funds aimed at targeted sectors and regions. By directly providing or indirectly guaranteeing up to a third of the capital of these funds, OPIC is able to mobilize a substantial volume of private finance capital to achieve US policy goals. OPIC currently sponsors 49 such funds, which have a combined capital of $11.5 billion.

These funds, while externally managed, are intimately tied to US strategic policy objectives. Following a July 2009 promise by president Obama in Cairo to create an investment fund aimed at improving technological capabilities in Muslim countries, OPIC responded by launching a number of such funds. These included a $150 million Pakistan-oriented technology fund, announced by Hillary Clinton in July 2009 during a meeting of the US-Pakistani strategic dialogue. Referring to a recent increase in emphasis on the MENA area, OPIC states that “Throughout the Middle East, OPIC support of developmental projects advances U.S. policy, as articulated by President Obama, to bring to the region the benefits sought by people everywhere: an end to terror, access to basic services, the opportunity to live their dreams, and the security that can only come with the rule of law.”

In recent years, by far the most important arena of OPIC activity has been Africa. While historically only 25% of OPIC-sponsored funds (by value) have been targeted at Africa, this total has risen to 47%, or $5.4 billion (a large sum in the context of African FDI inflows). Among funds still in the fundraising stage, this percentage rises to 62%. Why this sudden emphasis on Africa? A large part of the answer is likely that the United States is leveraging its own state investment instruments in an attempt to counteract the growing influence of Chinese state instruments, such as the China Africa Development Fund. A 2006 report by the Council on Foreign Relations entitled More than Humanitarianism: A US Strategic Approach Towards Africa, on the issue of increased competition with China over African natural resources, notes that “the United States has instruments, such as the Export-Import Bank, OPIC, and the United States Trade and Development Agency (USTDA), which can be used more in a proactive and coordinated manner to assist U.S. companies to compete in this changing environment” (p. 53) Apparently the authors were somewhat embarrassed by this recommendation, as they qualify it with the rather contradictory statement that “Aid programs should not be distorted into vehicles for supporting U.S. companies abroad.”

It is understandable that the authors would want to hedge in this manner, as they have opened an enormous normative can of worms. In 2007, in his widely cited “Funds that Shake Capitalist Logic,” Larry Summers had the following to say regarding state investment vehicles, namely SWFs: “The logic of the capitalist system depends on shareholders causing companies to act so as to maximise the value of their shares. It is far from obvious that this will over time be the only motivation of governments as shareholders. They may want to see their national companies compete effectively, or to extract technology or to achieve influence.” This ambiguous blending of commercial and national strategic objectives is of course what the 2008 Santiago Principles were intended to prevent.

Even if such principles were enforceable, they are based on the premise of a clear-cut conceptual distinction between SWF and non-SWF, or at least state and non-state entities. What cases such as the OPIC illustrate is the instability of these conceptual categories themselves. Strictly speaking, it would be hard to call the OPIC itself an SWF, given its provision of insurance and loan guarantee products. Likewise, OPIC’s sponsored investment funds are structured in such a manner that they cannot be said to be “state-owned” per se. In spite of this, however, the investment patterns of OPIC’s sponsored funds are much more intimately tied to national policy objectives than those of most SWFs. So do OPIC and its affiliated funds constitute an American SWF? In order to answer this question, we need to develop a stable conceptual framework for dealing with various forms of state participation in global markets—in particular, we need to decide what exactly it is that we mean by the term “sovereign”. While this is beyond the scope of this entry, it is food for thought.

6 Responses to “Guest Post: Daniel Haberly”

  1. 1 MMcC September 7, 2010 at 10:34 am

    Thought-provoking post. Without claiming any insider knowledge or conviction that I’m doing more than repeating received wisdom, it may be the case that OPIC is a very strong example of the reputation that many other SWFs (CIC, certainly) are trying to avoid. As long ago as the mid-80s, my poli sci prof was using OPIC’s investments as a guide to areas where America’s intelligence services were attempting to build longer-lasting capabilities. Moreover, in much of the Spanish-speaking emerging world, OPIC backing is presumed to mean agency ownership. I think that kind of connotation is likely to be avoided at almost all costs by the majority of the world’s SWFs, as most of them have at least some ambitions to invest directly in the US.

  2. 2 Andrew Rozanov September 7, 2010 at 4:11 pm

    Another interesting and innovative US government entity is In-Q-Tel. See more details on their web-site

  3. 3 Daniel Haberly September 8, 2010 at 3:06 pm

    Wow, thanks for sharing this!

  4. 4 Javier Capape February 6, 2011 at 10:12 am

    Thank you Prof. Rozanov for sharing that link, too.
    Daniel, so interesting your approach to the needings of a new framework. Do you know anyone working on the law part of all these issues, I mean, someone dealing with these new needed concepts about sovereignity, state-economics?
    thank you in advance, Javier

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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