“Ten years ago, the development finance institutions together [which invest in the private sector] were financing about $10 billion in investments in emerging markets,” said Littlefield. “Today it’s $40 billion. Tools to harness private capital for development are going to continue to grow exponentially.”

To read the entire New York Times article titled: “An Investment Strategy in the Human Interest,” click here.

2013 annual report highlights OPIC partnerships

OPIC has a long tradition of partnering with private sector businesses to catalyze investment in challenging markets around the world. But the agency’s work extends beyond public-private partnerships. In its recently published 2013 annual report, OPIC outlines several of the successful partnerships it has forged with other U.S. Government agencies to address major development challenges such as:

–Clean Energy. Access to energy remains limited in much of the developing world, including Africa, where about 550 million people have no electricity. OPIC is partnering with the U.S. Department of State and the U.S. Trade and Development Agency on the U.S.-Africa Clean Energy Finance Initiative aimed at driving more private sector investment to clean energy projects in Africa.

–Food Security. Despite the significant progress made in recent decades, world hunger remains a major problem with malnourishment afflicting about one in eight people on the planet – roughly the combined population of the United States and the European Union. OPIC supports the Obama Administration’s Feed the Future global hunger and food security initiative by supporting multiple projects in the clean water and sustainable agriculture sectors.

–Water. Clean water supports global health and food security. OPIC is a part of the U.S. Water Partnership, an initiative of the U.S. State Department to facilitate increased access to water in developing markets, partly by supporting investment in international water projects.

–Housing and Disaster Relief. As part of its work supporting investment in challenging markets around the world, OPIC is quick to respond to unforeseen events, such as natural disasters, that increase the need for private investment. In the wake of the 2010 earthquake in Haiti, OPIC has supported multiple projects to help rebuild damaged homes and other infrastructure. In one of these projects, OPIC is working with USAID as well as the Clinton Bush Haiti Fund to support a program to help low-income borrowers access home improvement loans and affordable mortgages.

To read more on The White House Blog, click here.

Photo Credit: Fintrac Inc.

In Kenya, the U.S. Government’s Feed the Future initiative is working to improve food security and childhood nutrition by helping farmers introduce nutrient-rich crops to their farms and teaching families new recipes full of vitamins and minerals needed to ensure healthy growth. Read more here.

• The Development Impact Bond Working Group, formed by the Center of Global Development (CGD) and Social Finance, convened on June 5 to present their findings and initiate a public dialog about   Development Impact Bonds. These bonds are a new financing instrument that could bring together investors, governments, the private sector and civil society to provide public services in developing countries. Development Impact Bonds are geared toward governments that cannot yet afford the full cost of additional public services; donors provide some or all of the repayment to investors when the results are proven. The concept is an adaptation of Social Impact Bonds, a way of financing public services, which are currently being tested in the U.S., Australia, Britain, Canada and Ireland.

The event marks the beginning of a public dialogue about the report, which will run until July 17. “Development Impact  Bonds and other innovative, results-based financing mechanisms have the potential to transform the way we invest in social and economic development in both rich countries and developing countries,” said Littlefield, who co-chaired the working group with Owen Barder of the Center for Global Development (CDG) and Toby Eccles of Social Finance, a nonprofit focused on driving investment for social change.

• The G8 UK Social Impact Investing Forum  on June 6 provided a platform for politicians, philanthropists, investors, business executives, entrepreneurs and policymakers from across the G8 to discuss the opportunities and challenges that a global social impact investment market presents. Littlefield spoke at a session on the potential of social impact investment in international development.

OPIC also signed onto a letter of support for the summit that stated, “the scale of our global problems far exceeds the resources currently allocated to solve them.  By tapping the power of markets, impact investing has strong promise of unlocking new capital sources that can complement existing philanthropic and government funds.  It can also catalyze innovations that help unravel some of society’s most pressing issues.”

OPIC’s Small and Medium-Enterprise (SME) Financing is available for businesses with annual revenues of less than $400 million. In this interview, James Polan, Vice President, Small and Medium Enterprise Finance, explains the work that he and his colleagues do to provide counsel and financial products to these types of businesses looking to do business in emerging markets.

Why does OPIC focus so much of its time and energy on Small and Medium Enterprises (SMEs) in emerging markets? What are the opportunities you see?

SMEs make up a majority of new investments not only in the U.S. but around the world, so it only makes sense for us to focus our time and energy in this sector. These companies generally don’t have the resources that a large company may have to go out and find the financial products necessary to make investments in difficult markets. We have put in the time to help clients to structure the deals in the right way, and to understand the legal ramifications.

There are boundless opportunities out there for SMEs to invest in these emerging markets. For instance in South Sudan, the newest country in world, they have natural wild mangoes growing so enormous and so plentiful, that when they fall from trees they block the roads that exist. As infrastructure is being built there, including roads, there are opportunities for businesses to emerge. In this instance there could be a fruit processing facility to take advantage of the natural resources. This is just one example of the exciting possibilities we see and, in order to make a significant impact around the world, these SMEs need us and we need them.

How can OPIC’s financial products support American business expansion in emerging markets?

We utilize loans and political risk insurance to support the expansion of American SMEs in emerging markets. It is virtually impossible for a SME to obtain a long-term fixed interest rate loan on their own, in any of the countries that we operate in. The financial markets are just not prepared to take SME risk in emerging markets.  Often times these companies are self-financing and need political risk insurance. We insure against a whole host of risks including expropriation, terrorism, and political violence – all issues that SMEs are concerned about and unable to manage internally.

At OPIC, I believe we truly understand the possibilities and we understand the risk, and bring our knowledge and capabilities of working with governments to these businesses.

Where do you see the most opportunity – geographies and sectors – for small businesses in emerging markets over the next few years?

We see some of the biggest opportunities in terms of geography in Haiti and Central America, and extraordinary opportunity in particular in Africa. Haiti is rebounding from the hurricane and economic strife. In addition, Africa’s growth has been phenomenal and is projected to grow at a very rapid pace in terms of consumer goods, disposable income, and the rise of the middle class. In the past the discussion around Africa often centered on political instability, whereas today, businesses are waking up to new opportunities, like the mangoes I mentioned earlier, and there is a powerful, palpable interest now from mainstream companies all over the world to invest there.

Can you tell us about a project that you have visited where you have been able to witness impact firsthand?

Some of the best examples I have seen come from the countries where we see the biggest opportunities. They show real impact both here in the United States as well as in the host country. In Tanzania, a small U.S. trucking business from Maryland had 10 trucks moving copper between neighboring countries, and we were able to help them incubate their company to the point where we now have 55 trucks and will soon have more than 100. They are now at nearly a 100 percent capacity – and every truck supports at least two families in the region.

In Brazil, Sambazon, a small and growing U.S. business, needed financing for an overseas project to develop a sustainable way to build a more reliable supply of açai berries. We financed construction of an environmentally-sustainable, organic acai-berry processing facility. That facility creates income for more than 10,000 family farmers in the rainforest and Sambazon more than doubled its U.S. employee base.

What’s the most exciting thing you have witnessed from a business perspective in Africa? What are the opportunities for SMEs in Africa?

Foreign investment has been growing extremely quickly in Africa in the past five years, and what we will continue to see and will watch carefully is a massive investment in infrastructure. SMEs typically won’t be involved in large infrastructure, but they are involved in all of the industries that surround it  including, building materials, low-cost housing, small hotels, consumer products and supply chain projects including cold storage, logistics, transportation, packaging, agro-industry and  waste management. This is where I come back to my mangoes example.  When there are real roads in places like South Sudan, these types of businesses will truly be able to be imagined, and we at OPIC believe these things are coming.

Can you give us three key statistics worth watching in the next few years as it relates to Africa’s growth and opportunity?

There are many things that OPIC will be watching in the next few years with regards to Africa, and they are all inter-related.  As we watch the middle class grow and expand, we carefully monitor the growth of the consumer goods sector.  When there is more disposable income, more goods are produced and delivered, creating more opportunities for businesses in these markets.  In turn, we truly hope to see the growth of foreign investment in these emerging markets continue to grow and expand.

Photo credit: Global Communities

Candido Rodriguez, a farmer who lives and works in a rural region of Nicaragua, was able to purchase a solar panel with the help of a local microfinance institution, Fondo de Desarrollo Local (FDL), that offers flexible repayment in order to make solar products affordable to families who live off the electric grid.

FDL is one of the many microfinance institutions supported by Global Communities, an OPIC client that aims to improve living standards for poor populations in Latin America and the Caribbean. To date, OPIC has lent money to three Global Communities funds, including one that has matured and been repaid in full.

Rodriguez, pictured here with two of his five children, says solar lighting has enabled him to be more productive in his work and provides clear light for his children to do their homework.

“No priority facing our nation is more important than putting Americans back to work,” John Murphy, Vice President for International Affairs at the U.S. Chamber of Commerce said at the hearing. Murphy described the large amount of private sector investment OPIC has leveraged, and how this work has supported hundreds of thousands of American jobs, while helping to reduce the federal budget deficit.

Murphy, who spoke at the May 22 hearing before the Senate Foreign Relations Subcommittee on International Development and Foreign Assistance, Economic Affairs and Peace Corps, emphasized the strength of OPIC’s business model of charging market rates for its loans and political risk insurance, which enables it to operate on a self-sustaining basis at no cost to American taxpayers. Over 41 years, the projects OPIC has supported have generated an estimated $75 billion in U.S. exports and supported more than 277,000 American jobs.

Also at the hearing, Caterpillar Inc. Co-President William Lane spoke about the value OPIC delivered in supporting basic infrastructure projects that literally paved the way for further development in emerging markets. “The road to development – and the investment, commerce, and trade that follow –may begin (literally) with a road,” he said. Lane also described how OPIC support of American businesses in many highly competitive emerging markets was “essential to maintaining a level playing field.”

Todd Moss, Vice President at the Center for Global Development, also spoke at the hearing and said that OPIC had the potential to have an even greater impact. See the full text of the testimony here.

OPIC financing is supporting construction of the Los Castanos de Choloma affordable housing project in Honduras.

By John Aldonas
Deputy Vice President, OPIC Small and Medium Enterprise Finance

Does it make business sense to invest in the world’s poorest people?

Earlier this month, I joined some OPIC clients on a panel at the Society for International Development, where we discussed why private sector investments in some of the poorest and least developed parts of the world offer such promise for a strong return on investment.

As the U.S. Government’s development financial institution, OPIC has a long history of investing in emerging markets, and my fellow panelists provided some of the key reasons why these investments make sense.

1. Diversification Before the 2008 financial crisis, many people considered a portfolio to be diverse if it was invested in major financial centers around the world from New York to Hong Kong. But when U.S. markets crashed, all those foreign markets behaved in the same basic way, said MicroVest Chief Executive Officer Gil Crawford. In order to find assets that don’t behave like all the others in your portfolio, Crawford said, you have to invest in real frontier countries. “The tire repairman in Tanzania is entirely unaffected (by world financial markets),” he explained.Microvest manages a family of funds that invest in microfinance institutions in low-income countries, sometimes with the support of OPIC financing, in order to support more lending to local entrepreneurs, who often cannot obtain conventional bank loans. “Writeoffs are surprisingly low,” said Crawford.
2. Scalability The reason microfinance lending works, is because it can lead to “explosive growth in productivity” by its entrepreneurial borrowers, Crawford explained. And because scale is so essential to the success of microfinance, he said Microvest focuses on identifying worthy microfinance institutions with the potential to grow. “The best way to help a large number of working poor out of poverty is through commercial microfinance,” said Crawford.
3. Strong demand When investing in the world’s poorest and least developed places, demand for basics like housing can be extremely strong, explained Thomas Livelli, co-founder and vice president of Inter-Mac International Inc., an OPIC client. In 2008, Inter-Mac began using $70 million in OPIC financing to support Los Castanos de Choloma, a housing project in Choloma, the sixth-largest and fastest growing city in Honduras.The Inter-Mac project is designed to include 2,400 affordable single-family homes in gated communities with a central park area that provides shelter from surrounding violence and encourages residents to maintain and take pride in their property.  These homes represent a major improvement over the “informal housing” that is so common in this region.  Additionally, Inter-Mac is delivering important infrastructure such as paved roads, electrical grids, wastewater treatment, and running potable water; nevertheless, the homes still remain affordable to working families in Honduras earning minimum wage.When considering the project’s long-term potential, Livelli said, Inter-Mac looks not just at this initial housing project but at its scalability. “We are serving a market where there is no shortage of demand,” he said.

Their comments also underscore the importance of the private sector in development in emerging markets. OPIC work supporting private sector investment in some of the world’s most challenging business environments is based on the understanding that the world’s development problems are too vast for any government or nonprofit group to address on their own. In my comments on the panel, I quoted President Obama’s remark that in advancing development, “we need to harness all the tools at our disposal – from our diplomacy to our trade investment policies.” By leveraging private capital, OPIC is able to address major development challenges and generate financial returns.

The waiting room of a health clinic in Tanzania that has used a loan from the Medical Credit Fund to upgrade its facility.

May 25 is Africa Day, which recognizes the founding of the African Union in 1963. This year, the 50^th anniversary of African unity provides an opportunity to highlight the great progress the continent has made, and encourages a look toward the future.

By almost all accounts, the future is bright. One commonly-cited statistic is that seven of the 10 fastest growing-economies are in Africa.  In 2011, The Economist dubbed Africa The Hopeful Continent.  Africa’s  middle class is expanding rapidly and is expected to grow by 50 percent over the next 10 years. Many of those newly-middle class people are moving from rural areas to cities, creating new demand for modern infrastructure, goods and services for people with disposable income, and are helping foster the business activity that supports economic growth and stability.

At the same time, the continent continues to face multiple problems related to poverty, food insecurity and malnutrition. OPIC, which has a long history of supporting development and private sector investment in Africa, is today supporting a range of projects that address Africa’s widespread poverty as well as its booming economy. Last year, projects in Africa accounted for a quarter of OPIC’s global portfolio, up from just 6 percent ten years earlier.

From food security to healthcare, and with an eye to impact investing, OPIC supports businesses that are addressing the varied development challenges on the continent today. Here are four ways OPIC supports development in Africa:

1)      Financial inclusion – The access to basic financial services like savings accounts and credit is an essential component to helping individuals lift themselves out of poverty. Rates of financial inclusion are particularly low in Sub-Saharan Africa where only 28 per 1,000 individuals have access to bank loans. OPIC has supported expanding financial inclusion in Sub-Saharan Africa by providing financing and political risk insurance for investments made by the Access Africa Fund, an investment vehicle managed by MicroVest Capital Management LLC.

2)      Food security – Rwanda, like much of the developing world, continues to struggle with issues of food insecurity due to inefficient crops and limited supplies. When Steven Jones, a horticulturist from Tennessee, visited Africa on a trade mission, he was determined to improve crop yields so that Rwandan farmers could increase their output in less time. Jones received a $20 million loan from OPIC for his organization, Forestry and Agricultural Investment Management (FAIM). Today, the virus-free seedlings him and his colleagues use have the potential to produce 10 times more than similar crops in Rwanda.

3)      Healthcare – In Sub-Saharan Africa, there is limited access to healthcare and it is often poor in quality. Adding to the strife, many health clinics are unable to get sufficient funding due to the lack of a solid financial track record. Last year, OPIC provided a $5.4 million loan to the Medical Credit Fund (MCF), a health investment fund, to support investments in clinics that are too large to qualify for regular funding or lack a financial track record. Loan recipients have used the funding to purchase new medical equipment such as ultrasounds and blood analyzers, improve their infrastructure and attract more patients.

4)      Consumer services – Over the past decade, Africa’s middle class grew by 60 percent, and the number of households with discretionary income is expected to increase significantly over the next decade. As the middle class emerges, so too does the demand for consumer services such as affordable Internet, phone and television. OPIC recently provided $72 million in financing to the Wanachi Group Ltd. to help bring these services to underserved areas in East Africa. With OPIC’s financing, Wanachi Group can deliver quality educational, informational and entertaining programming to households in the area while creating more than 1,000 managerial and technical jobs.

For more about our work in Africa, please visit our interactive map.