Avoiding economic depression in Afghanistan: How private-sector investment can help
By Elizabeth Littlefield,
OPIC President and CEO
Earlier this month, the Senate Foreign Relations Committee offered a grim forecast about the future of Afghanistan, warning that the country could face “a severe economic depression” after foreign troops withdraw in 2014. The report, which asserted that both military and civilian aid programs in the country are unsustainable, reopened a longstanding debate about the limitations of foreign aid. When aid is spread thinly across multiple sectors or initiatives, or when it flows faster than it can be absorbed, it runs the risk creating the wrong kind of incentives, and having a negligible impact.
But there are other tools to rebuild Afghanistan alongside foreign aid. The United States is creating incentives for the private sector to shoulder more of the job. The Overseas Private Investment Corporation (OPIC), the U.S. government’s development finance institution, offers loans and political risk insurance to mobilize private-sector investment to help solve critical development challenges and advance U.S. foreign policy in places like Afghanistan and other countries important to our national security. OPIC creates incentives and reduces the risk for businesses, individuals, and NGOs investing long-term capital in emerging markets. By charging interest and premiums for its products, OPIC generates revenue for the U.S. government every year, while at the same time helping American businesses gain footholds in emerging markets from India to Afghanistan to Indonesia.
In Afghanistan, OPIC has provided investors with the capital and insurance they need to be willing to invest in this challenging place. Since 2003, OPIC has invested $201 million in 32 projects aimed at making the region more stable and self-sufficient. Projects such as dairy production as an alternative to poppy farming, and small wind and solar projects to generate electricity in rural areas are the kinds of investments that create stability and opportunity that the U.S. wants to leave behind in Afghanistan.
President Obama’s new plan for global development gives primacy to sustainable private sector investments and economic initiatives that can be rigorously measured and evaluated. Drawing on the best that American enterprises have to offer – from clean energy technology and vaccines, to improved seed varieties and innovative financing models – the goal is to collaborate with a wide array of private and government partners to find projects that can be scaled up to achieve lasting impact.
At a time when federal spending is tight, foreign aid is difficult to fund. Cost-effectiveness is paramount. To maintain America’s leadership in global development, we need to use every tool at our disposal and U.S. business is one important one.
And business partners are ready. At OPIC, we know how to design risk-sharing partnerships to meet business needs as well as complex development goals. We have a proven track record of identifying opportunities at the intersection of developmental impact and commercial viability. Likewise, our private-sector partners understand that for their long term success, the countries and communities in which they invest must see economic and social benefits too. By bringing in responsible sector investment to countries like Afghanistan, OPIC works to build a self reliant country and end the cycle of aid, while generating revenue for the federal budget.