What types of companies come to OPIC for political risk insurance?

We see all types of companies, investors, lenders and operators looking for political risk insurance from OPIC. We serve small- and medium-enterprises (SMEs) as well as large institutions. Our clients include everyone from new and solo investors, many of whom are from the diaspora community, who are looking to do something in their home country to large established corporations such as Citibank and GE.

How can SMEs benefit from political risk insurance?

Our clients can be concerned about a variety of different factors, including political unrest and the inability to obtain their invested money back out of a foreign nation. They may be a waste management company who agrees to provide services for a government, or a wind turbine manufacturer who sells power to a certain country, but their fears are often the same: what if the government stops paying because they can’t or won’t?

OPIC’s role is to provide the protection from a variety of political risks beyond an investor’s control including:

• War, civil strife, coups and other acts of politically-motivated violence including terrorism
• Expropriation, including abrogation, repudiation and/or impairment of contract and other improper host government interference
• Restrictions on the conversion and transfer of local-currency earnings

Because we are able to provide these protections, we can often offer the assurances that give our clients the peace of mind to make an investment they are passionate about.

What are some scenarios in which an investor would need political risk insurance?

There are many different reasons why an investor would need political risk insurance. One reason we often provide insurance is to assuage the fear of changing governments. Our investors want to know that if they invest time, effort and money into a project, the country’s government won’t suddenly change and keep the profits. What we do in these cases is provide the advocacy they need to deal with the governments. We deal with the government, or municipality, often through our U.S. Embassies. In every country where OPIC operates we have a bilateral agreement between the U.S. and the host government that allows us to intervene.

Often it is also used as a tool to secure financing for projects. For instance, if a U.S. client wants to invest in a dairy farm in Indonesia, because they know the area and believe it would be a good investment, we can make that client’s local U.S. bank more willing to lend money to support a commercially attractive overseas investment, which it might otherwised never consider.

Tell us more about the advocacy services you provide your client companies and how those can benefit companies?

We often partner with the embassies in the countries we operate in. In addition, we work with the U.S Department of Commerce and/or our U.S. ambassadors to get involved where needed. For instance, if one of our clients is manufacturing widgets and their host country imposes a rail or road tax that is tenfold what it used to be and only applies to this company, that can do major damage to the economics and the flow of business.

OPIC would then work with our partners at the U.S. Embassy or U.S. Department of Commerce on the ground in that country to advocate with the host country against the imposed so the investor is able to continue to do business and eliminate difficulties on the ground.   That is a service that we provide that avoids or resolves investment disputes before our insured investor has to walk away; before we have to pay a claim and seek recovery against the host government; and before a host country suffers damage to its reputation as an attractive destination for foreign investment.

OPIC prioritizes some key sectors – including renewable resources. Tell us about insurance tailored for this area.

We have developed new insurance products to address these issues. In 2011, OPIC developed a new insurance product to protect investors against political risk in Reducing Emissions from Deforestation and Forest Degradation (REDD) projects, which uses market incentives to promote sustainable forest management. The first deal for this product provided $900,000 in political risk insurance to Terra Global Capital, an investor in a project that will protect large swaths of forest in Cambodia through the sale of offset credits in international carbon markets. Terra Global said it purchased the political risk insurance in order to reduce its exposure to future changes in national and local governments and laws over the life of the project. It also said it expects that insurance against political risk in REDD projects will encourage more private-sector investment in this emerging sector. The project, which OPIC recently won an Environmental Finance award for,  is expected to generate a 30-year income stream to help the government of Cambodia and local community groups fund activities – such as community forest patrols and water resource development projects – that reduce deforestation.

Are there other innovative coverage options that OPIC has created based on evolving needs in emerging markets?

In Ghana we recently approved $119.5 million in political risk insurance to help modernize Ghana’s agricultural sector, bringing much-needed food security to the country and supporting its effort to become a regional food exporter. The project involves the installation of modern silos, grain mills, cold storage and livestock breeding facilities, and computers and other technical equipment to assist in statistical research and agricultural monitoring throughout Ghana. The OPIC insurance is covering loan financing for the project being raised in the U.S. bond markets by U.S.-owned company Belstar Capital Ltd. The project will reduce post-harvest losses and increase agricultural productivity, leading to greater food surpluses for local populations and reducing reliance on imported products. It will also strengthen Ghana’s market infrastructure and agricultural production standards, both of which are necessary for Ghana to increase agricultural production and exports.

Can you give an example of political risk insurance in action?

Another great example of political risk insurance in action includes the insurance of $150 million to support the rehabilitation of nearly half the municipal water purification systems in Ghana through the Ghana National Water Infrastructure Modernization Project. This investment is central to Ghana’s National Water Policy, which aims to increase the availability of clean water from 61 percent to 85 percent of the population by 2015. It will also help reduce waste by increasing the efficiency of the country’s water treatment plants from 77 percent utilization to 100 percent. Belstar Capital Ltd, a U.S. company, and Deutsche Bank arranged the $150 million in debt financing. The lack of clean drinking water and sanitation systems in Ghana cause more than 20,000 deaths annually through dysentery and other waterborne diseases.

This example shows how OPIC has a history of paying claims. We insured a U.S.-based financial services corporation against currency inconvertibility in Venezuela on a loan provided for the purchase of ferry-boat engines and other related equipment.  In that case, the Government of Venezuela imposed new exchange controls that sharply restricted access to foreign exchange and required prior authorization for purchase and sale of foreign currency through a newly created Exchange Administration Board.  This meant that the U.S. company insured by OPIC was unable to legally convert local currency to U.S. dollars for the applicable waiting period (60 successive days).   OPIC subsequently approved the claim and paid the insured party (in U.S. dollars) the amount that it was unable to convert.

For more information about OPIC’s Political Risk Insurance products please visit www.opic.gov .

Los Castanos de Choloma affordable housing project in Choloma, Honduras, was designed with a central park area that provides shelter from surrounding violence and encourages residents to maintain and take pride in their property. Inter-Mac International Inc. is using OPIC financing to build a community of 2,400 single-family homes that are affordable to working families earning minimum wage. Inter-Mac is also building out critical infrastructure in the region including paved roads, electrical grids, wastewater treatment and running potable water. The project recently won a Gold Nugget award by the Pacific Coast Builders Conference.

Nonetheless, they say that these countries have become entrepreneurial hubs. The series, which explores entrepreneurial activity in some of these highly challenging and highly promising markets, underscores the opportunities that these places hold for small businesses and startups.

But why start a business in less-than-ideal conditions in a far-away place? The series offers at least two compelling reasons:

1. “Conflict and post conflict countries offer huge opportunities”
2. “Prosperity is an engine of peace”

OPIC, which has a long history of supporting private-sector investment in emerging and post-conflict regions around the country, also works to educate the American small business community about the opportunities in these markets. To that end, the Agency hosts a series of Expanding Horizons workshops around the country focused specifically on small businesses and the ways that OPIC can help them expand abroad. The next Expanding Horizons event will take place on June 27 in Fort Worth, Texas.

OPIC supports U.S. private sector investments in post-conflict regions like the Atlantic Village housing project in Iraq.

Sherry Ayittey, Ghana’s Minister of Health, seated, tours one of eight new mobile medical clinics that were introduced this month as part of the National Medical Equipment Modernization Project. OPIC is supporting the project by providing political risk insurance to  Belstar Development, LLC, the lead investor in the project. These mobile clinics will travel to currently underserved areas of the country and are equipped with backup generators so that they will be able to serve patients even when they do not have access to the electrical grid. The project plans call for a total of 8 mobile clinics and 10 maintenance and repair vehicles .

OPIC’s newly-released 2012 annual report showcases several key projects and agency priorities of the past year and highlights the role of innovation in our work. Innovation has long been a guiding principal at OPIC, which has built creative deal structures and partnerships to address the challenges of investing in the developing world and worked with several innovative businesses that found new solutions to old problems. Here are some recent examples:

In Indonesia, OPIC worked with Citi to help support microfinance lending in local currency. OPIC provided a $21.6 million loan guaranty to support a local currency loan from Citibank Indonesia to Bank Andara, a major local microfinance lender.  As microfinance investing has risen sharply in recent years, one challenge has been getting funds to the world’s poorest people, and Bank Andara will use the funds to make loans to local microfinance institutions, many of which focus specifically on lending to the poorest populations.

In Haiti, OPIC provided $17 million in long-term loans to Development Innovations Group (DIG), a Maryland-based finance and development firm, in conjunction with a $6 million grant from the U.S. Agency for International Development (USAID) and $3 million from the Clinton Bush Haiti Fund.  This creative partnership allowed for an establishment of a financing facility for low-income housing in Haiti after the 2010 earthquake. The facility will help to address a critical need for mortgage financing in Haiti, where people continue to live in tents and other temporary housing.

In Rwanda, a U.S. horticulturist has used OPIC financing to establish a business, Forestry and Agricultural Investment Management, focused on growing healthy, virus-free plant cultures. Diseased plants and old seedlings has contributed to a serious decline in the country’s production of food staples and the introduction of healthier plants and better growing processes has the potential to significantly improve farm productivity, food security and nutrition in the community.

To learn more about OPIC’s innovative work over the past year, please see our 2012 annual report.

OPIC will take its popular Expanding Horizons workshop to Charleston, South Carolina on May 7 in an effort to educate more small businesses from the southeastern United States about the benefits of expanding into emerging markets, and the ways that OPIC finance and insurance tools can support their efforts.

OPIC began its Expanding Horizons series in 2006 in recognition of the fact that small businesses, which are so critical to the domestic economy, can also be key players in the global economy, and that by expanding into new markets, they can help drive procurement of U.S. goods and services.

Indeed, since 1971, OPIC projects in developing countries have supported procurement of U.S. goods and services that have generated an estimated $75 billion in exports, while supporting an estimated 277,000 American jobs. Many of those benefits have flowed to South Carolina. OPIC tracks data on the impact of its work on individual states, which shows that the projects it has supported for South Carolina businesses have supported an estimated 473 jobs in the state and an estimated $304.7 million in procurement of goods and services from the state, the majority of which are supplied by small businesses.

Neighboring states have also benefited. OPIC-supported projects in North Carolina have supported an estimated 2,819 jobs in the state, along with an estimated $171.5 million in procurement of local goods and services.  And in Georgia, OPIC projects have supported an estimated 2,068 jobs and procurement of $192 million of local goods and services.

Developing countries, which are home to a large and growing portion of the world’s consumers, represent a significant opportunity for American businesses. Africa, for example, is home to seven of the ten fastest-growing economies in the world and the number of households with discretionary income is expected to grow 50% over the next decade. But while many major corporations are already tapping into these high-growth markets, smaller businesses have been slower to enter.

The May 7 Expanding Horizons event in Charleston is the second of six events OPIC has planned for 2013. For more information about these workshops, click here.

Workers at Plumblink, a South African supplier of plumbing and sanitation equipment that is one of the investments of the OPIC-supported Ethos Fund, that invests in African businesses. OPIC is one of the largest sponsors of private equity funds in emerging markets, supporting investments that contribute to development and often create local jobs.

OPIC’s work supporting development in emerging markets often helps create jobs in the host countries and OPIC works closely to ensure that workers’ rights are respected. The Agency’s Office of Investment Policy (OIP), monitors active projects to ensure compliance with several environmental, economic, social and human rights standards, including workers’ rights. These policies can be found in OPIC’s Environmental and Social Policy Statement (ESPS) and this recent interview with Margaret Kuhlow, Vice President of OIP, provides more detail on the extensive work her office conducts monitoring projects.

The attention to workers on International Workers’ Day also serves as a reminder of the massive global unemployment challenge. A report earlier this year from the International Finance Corporation (IFC) counted worldwide unemployment at  200 million — a number roughly equivalent to the population of Brazil – and said that the developing world will need to create some 600 million new jobs by the year 2020, just to keep up with young people entering the workforce. At a time when unemployment is one of the biggest challenges facing workers, IFC’s report underscored the value of the work of development finance institutions (DFIs) like OPIC in creating jobs: The report showed that the private sector is responsible for creating nine out of every 10 jobs in developing countries.

The Twitter chat series will provide U.S. companies with information and resources on doing business overseas. The Twitter chats will also provide an opportunity for firms to ask questions and connect directly with the U.S. government agencies that support President Obama’s National Export Initiative (NEI) and BusinessUSA.gov, a new one-stop resource for small businesses and exporters.

Businesses will have the opportunity to participate in the chat by tweeting their questions using the hashtag #TradeChat during the scheduled times. If you are a business that would like to submit your questions in advance of the chat, please submit them here: http://www.ustda.gov/tradechat. To participate, at the starting time, U.S. companies should sign into their Twitter accounts and submit a question on the topic using hashtag #TradeChat. Agencies will respond to as many Tweets and questions on the topic as possible. Individuals who do not have accounts on Twitter can still follow the chats by visiting http://www.ustda.gov/tradechat

The schedule and topics for discussion will be:

• Thursday, May 9th at 2:00pm EDT: Export Opportunities
  Information about export assistance, international business partnership programs, match-making, and market research will be shared. U.S. companies will also learn about the new BusinessUSA.gov website and how this one-stop resource can help businesses begin exporting or increase their exports.
• Thursday, May 16th at 2:00pm EDT: Financing
  Export financing is often a key factor in a successful sale. U.S. companies should be aware of the many financing options available from U.S. government agencies to assist them with the export and trade process. This Twitter chat will provide firms with more information about the available financing options, including buyer financing, insuring foreign receivables, and working capital loans and guarantees.
• Thursday, May 23rd at 2:00pm EDT: Training and Travel Opportunities
  U.S. government agencies often host training, webinars, workshops, seminars, trade missions and trade fairs for U.S. companies interested in doing business overseas. This Twitter chat will provide firms with the knowledge they need to utilize these resources and events and connect directly with foreign buyers.

OPIC is pleased to be participating with the following agencies and organizations for this series:

• The U.S. Trade and Development Agency
• International Trade Administration
• Small Business Administration
• BusinessUSA
• Export-Import Bank of the United States
• The Office of the U.S. Trade Representative
• U.S. Department of State

The statement has particular relevance in Haiti, where, more than three years since a 7.0 magnitude earthquake resulted in extensive death and destruction, the country is still working to repair and rebuild and assume a path of sustained economic vitality.

Luis Garcia (pictured), spoke about the importance of basic building materials like concrete when he described his work in Haiti to an OPIC delegation in February. As Vice President for Planning at Haiti 360, Garcia oversees  projects that not only produce badly-needed concrete, but also highlight the critical role of the private sector in addressing urgent developing world needs such as modern infrastructure.

Haiti 360 – one of multiple OPIC-supported projects that were initiated after the 2010 earthquake – has used a $6 million OPIC loan to support startup costs of two plants producing high-quality concrete used to rebuild homes, roads and even an airport runway. In 2012, more than 500 homes were built with concrete from the new plants. Some of the homes, like those pictured below at the Cabaret housing settlement, were built to tap into the country’s sunny climate. They have solar panels on the windows and come with ATM-like machines, where residents can swipe cards to keep track of the power they use. Haiti 360 is now one of Haiti’s largest concrete producers, and is establishing a series of micro-mixing sites around the country so it can better meet the demands of local builders in different regions. The company is also planning to donate a percentage of its profits to local charities.

My work in international development has led me to Haiti several times but when I visited the country in February with an OPIC delegation led by OPIC President and CEO Elizabeth Littlefield, it was my first visit since the earthquake three years earlier. Today there are about 300,000 Haitians living in tents, down from almost three million who were left homeless after the earthquake. Long a poor country facing multiple development challenges, Haiti today faces the immediate challenge of housing and feeding a large displaced population, and is hoping to do so in a sustainable manner.  Construction underway throughout the country is aimed not just at repairing damage, but extending roads, bolstering infrastructure and fostering new industrial development beyond the capital city of Port au Prince, which is overcrowded with displaced people and job seekers.

The work I witnessed during my visit in February also underscored how governments, private businesses and NGOs all have an important role in this country, which U.S. Ambassador Pamela White has described as “too rich to be poor.” Indeed, Haiti is rich in talent, youth, innovative spirit and land. All of these resources were on display when our delegation visited the Cabaret Housing Settlement, where about 156 houses will be built with the support of Development Innovation Group (DIG). A Maryland finance and development firm, DIG is using a $17 million OPIC loan, together with grants from USAID and the Clinton-Bush Haiti Fund, to support lending in amounts as small as $1,000 for mortgages and home repairs for low-income borrowers. Builders at the Cabaret site are sensitive to the urgency to construct more housing and have organized a friendly-yet-fierce competition between two construction teams to see who can complete the most homes.

Development Innovations Group offers a good illustration of OPIC’s ability to form partnerships to achieve a greater developmental impact. As the U.S. Government’s development finance institution, OPIC helps private businesses invest in frontier markets and often collaborates with other agencies or NGOs to channel additional investment into projects addressing major social and environmental needs.  As the builders’ contest illustrates, DIG and other OPIC-supported projects have responded quickly to the need in Haiti  .

Our delegation also visited the site of Les Moulins d’Haiti, a flour mill that was destroyed in the earthquake and rebuilt with the support of OPIC political risk insurance to Seaboard Corp., which worked through a joint venture to reconstruct and upgrade the massive plant. It was reopened in late 2011 with greater production capacity, more modern machinery and an overall design that will better withstand any future seismic activity.

While it was immensely gratifying to see the ways that OPIC investments were having positive results on the ground, one of the best endorsements of our work came from Haiti’s President, Michel Martelly, who flew by helicopter to meet with our delegation and Ambassador White to discuss the ways to further engage the private sector to advance development. Much of the business activity currently planned is focused around the Caracol Industrial Park in the North, where a power plant, water treatment facility, housing communities and others are planned and are expected to create thousands of jobs and an economic hub outside of the capital city of Port au Prince.

Pictured, from left U.S. Ambassador to Haiti Pamela White; OPIC Board member Naomi Walker; OPIC President and CEO Elizabeth Littlefield; President of Haiti Michel Martelly; OPIC Deputy Chief of Staff, Paula Tufro; OPIC Director of Congressional Affairs, Aysha House-Moshi; OPIC Senior Investment Officer Michael McNulty

For me the trip helped me to understand the business of development and think about ways OPIC could work with the private sector and the NGO community to achieve more. I met with people from the Clinton Global Initiative as well as 60 NGOs to discuss ways they might expand their work beyond basic relief to support economic growth and stability, and the ways OPIC could support those efforts. Relief work is important, especially in the wake of a natural disaster, but more longstanding benefits can be gained by turning over projects to local people or scaling them into sustainable businesses with the help of critical tools such as OPIC financing and political risk insurance.