Spinelli Addresses Sustainable Development at London Conference

Below is the prepared text of remarks delivered by OPIC Acting President Dr. Lawrence Spinelli at a conference hosted by Goodenough College in London entitled The Challenge of Sustainability: How is Business Evolving in Response? Dr. Spinelli addressed a panel discussion entitled 'Can business propel sustainable development in developing countries?'

Can Foreign Direct Investment Be Sustainable?
Goodenough College
June 13, 2009

Dr. Lawrence Spinelli
OPIC Acting President

The mission of the agency I represent, the Overseas Private Investment Corporation (OPIC), compels me to answer the question before this panel in the affirmative. Namely, we at OPIC believe that business can indeed propel sustainable development in developing countries.

OPIC is an independent U.S. government agency whose mission is precisely to mobilize U. S. private sector investment in developing countries. We assist American companies by providing financing – ranging from large structured finance to small business loans – as well as political risk insurance, and supporting the creation of private equity investment funds, which in turn invest in targeted sector and regions of the developing world.

OPIC’s operates in more than 150 emerging markets and developing nations worldwide, and over the agency's 38-year history, we have supported $188 billion worth of investments that have helped developing countries to generate over 830,000 host-country jobs. OPIC projects have also generated $72 billion in U.S. exports and supported more than 273,000 American jobs. We are currently supporting 495 projects with nearly $12.3 billion in financing and political risk insurance.

It is relevant to one of the stated goals of this conference – namely, to address the question of whether corporate social responsibility is ‘just a luxury good that may endanger a company’s survival in price wars, or whether it actually provides a decisive competitive advantage’ – that I mention another aspect of OPIC’s mission. We are also a development agency.

OPIC, in deciding which projects to support, is obligated to ensure that those projects confer on the host economies and communities as many positive developmental benefits as possible. Our projects are designed to stimulate wealth creation and other benefits for as many people possible, and ideally, to serve as a platform for subsequent economic growth.

That is why we choose to support projects that improve a developing country’s physical infrastructure, whether it be through the new generation of electricity or the improvement of a decaying port or airport. It is also why we choose to support projects that strengthen a developing country’s financial infrastructure, be it local financial institutions on a national or micro-financing level.

It is also why OPIC supports projects that support the development of human capital in developing countries, for it is ultimately that capital that will stimulate growth rates in emerging economies at levels we should all like to see. For example, OPIC is providing a $250 million loan for treatment of HIV-positive homeowners in South Africa over ten years, enabling them to keep their homes by guaranteeing banks against the risk of defaulted mortgage payments. The project stands to help at least 350,000 South Africans obtain new mortgages and keep their homes.

It is also why OPIC in recent years has chosen to help emerging markets develop the most individualized unit of physical infrastructure – housing. Just last month, we announced that OPIC would provide $250 million to enable three banks in Jordan to expand homeownership for low-income families in the country. The financing, provided to Arab Bank, Cairo Amman Bank and Jordan’s Housing Bank for Trade and Finance, will enable the banks to introduce 25-year, fixed-rate mortgages to lower-income households in Jordan, in support of Jordan’s National Housing Initiative, established last year by King Abdullah.

Doubtless many among you will hear mention of such projects – guarantees against mortgage defaults by HIV-positive homeowners, or support for low-income mortgages during a global downturn – and think, these are commendable humanitarian undertakings, but from the standpoint of a cold, economic bottom line, they are hardly efficient, and likely not sustainable. Indeed, such projects would seem to make the twinning of corporate social responsibility and economic growth unsustainable.

In response, I am led to depart from OPIC’s mission and instead discuss our investment philosophy.

While we believe our historical record is impressive and serves as evidence that FDI in emerging economies is (1)viable and (2)can succeed, ultimately we at OPIC recognize that we, as an agency with fewer than 200 employees, will only be able to support a few dozen projects per year, across all of Africa, Latin America, much of Asia, and eastern Europe. That is to say, we cannot point to an individual country and say, OPIC support alone turned around a flagging economy, or generated sustainable development.

Rather, OPIC’s investment philosophy indicates that we believe the agency’s projects can perform an important demonstration effect. Our projects are designed not only to provide developmental benefits to host communities, but to demonstrate to US and other investors that profitable investments may be made in emerging markets. We attempt to establish a beachhead of investment in admittedly risky areas and show investors that their fears might not be justified, that emerging markets, with their large pools of entrepreneurial talent and consumer demand, may in fact be lucrative and indeed logical destinations for their investment capital. We hope that subsequent, larger waves of investment will follow, to indeed generate economic development that is sustainable.

Thus much of what OPIC does is to mitigate risk, or the perception thereof, so that US and host country investors might together undertake developmental projects in emerging markets. And while we might not be able to point to examples of sustainable development, we can point to examples of successful investment in countries that are early in their transition to free market economies – or out of war-torn circumstances, or extremely underdeveloped infrastructure – and say, sufficient entrepreneurial characteristics exist commonly as to be universal, and remain our best hope for generating sustainable development. Absent another, more successful model, we will continue to follow ours.

OPIC’s model indeed hinges on the idea of corporate social responsibility, I would add – not only in the demands we make for developmental benefits, but of the transparency of our project sponsors. We demand that all our sponsors respect strict human, worker and environmental rights standards, modeled after those established by the World Bank.

In fact, I am pleased to announce here that OPIC has comprehensively met all of the goals we set ourselves in a September 2006 Anti-Corruption and Transparency Initiative. It pledged the agency to improve its transparency in four areas: (1)Public disclosure of information about the projects OPIC supports; (2)Coordination of project development with concerned stakeholders, particularly locally-affected communities in host countries; (3)Due diligence screening of project sponsors and potential impacts; and (4)OPIC compliance with protocols such as the Extractive Industries Transparency Initiative and OPIC’s own Anti-Corruption Handbook.

We now post to the agency web site brief summaries of environmentally- or socially-sensitive – so-called Category A – projects at least 60 days before OPIC makes a decision to support them. Public comment on the projects is invited, and considered by OPIC, in advance of the decisions.

For all Category A projects and projects scheduled to come before the OPIC Board of Directors, OPIC now posts to its web site detailed project summaries at least 40 days before OPIC makes a decision to support them. Public comment is invited and considered by OPIC before the agency decides to support the projects.

The detailed summaries include information such as total project costs; potential project impact on the U.S. economy; description of the main environmental and social risks and impacts associated with the project; measures required to mitigate those risks; action required to achieve compliance with applicable environmental and social standards; and description of investors’ engagement with local stakeholders on environmental and social issues.

We encourage all prospective project sponsors to engage in meaningful consultation with local stakeholders during all phases of project development. Consultations must be inclusive and culturally appropriate and meet the needs of disadvantaged and vulnerable groups.

As I mentioned, we also formally endorsed the principles of the Extractive Industries Transparency Initiative, which supports improved governance in resource-rich developing countries through the full publication and verification of company payments and government revenues from oil, gas and mining ventures. The goal is to ensure that the revenues from extractive industries in developing countries contribute to sustainable development and poverty reduction. We encourage investors to voluntarily agree to the EITI guidelines in OPIC-sponsored projects.

Again, I realize that mention of these transparency standards might strike some listeners as self-serving and also at odds with optimal economic performance. To many, this may seem the ‘new corporate agenda driven by non-economic values’ that is referred to in the conference manifesto.

That manifesto asks whether economic growth in developing countries must come at the cost of human rights violations, rapid resource exploitations and an unequal distribution of welfare gains.

We at OPIC do not apologize for our respect for human rights and adherence to protocols like the EITI. We believe that economic development that exploits human capital and natural resources, or fails to benefit the least among us, is not likely to win the approval of the great majority of people in the countries we aim to support. A deeply cynical, exploitative brand of investment that helps only a tiny few at the expense of the many, is almost certainly destined to be unsustainable, for it values a fickle kind of capital that is likely to depart at the first sign of threat, having made no investment in the long-term well-being of its host community.

Rather, OPIC opts to focus its support on projects that tie economic viability to a more sustainable economic future. For example, last September, OPIC’s Board of Directors approved $505 million in financing for six new private equity funds designed to invest in clean and renewable energy projects in emerging markets worldwide. The funds will mobilize a total of $1.6 billion in capital for the sector, representing an historic commitment by OPIC to renewable energy.

For several emerging markets, these funds will provide the first significant pool of capital available for investment in clean and renewable energy projects.  As such they represent an important breakthrough for renewable energy globally—a step forward from general agreement on the need to develop more renewable energy sources, to the actual provision of capital to make it happen.

And last February, OPIC participated in the ceremonial opening of a desalination project in Algeria that will supply urgently-needed potable water to 25 percent of Algiers’s population. The project is supported by a $200 million OPIC loan guaranty.

The project involves the construction and operation of a reverse osmosis seawater desalination facility that will deliver 200,000 cubic meters of potable water daily to Algiers through a joint venture with the state-owned Algerian Energy Company. The project is the first private reverse osmosis potable water desalination plant in Algeria.

Through the project we can now see how far-sighted government efforts five years ago resulted in foreign direct investment in Algeria that will now have tangible benefits for the people of Algeria. The participation of the private sector and the involvement of foreign direct investment will serve as a model for all of Algeria’s desalination projects.

Thus we have concrete, successful examples of both the economic and developmental logic that underpins OPIC’s demonstration model. We are helping to lay a foundation of physical, financial and human infrastructure in emerging markets, so that it might interact with the entrepreneurial spirit and ambition that surely exists everywhere, so that economies might grow, and do so sustainably.