Overseas Private Investment Corporation (OPIC)

The Overseas Private Investment Corporation (OPIC) is a wholly owned U.S. government corporation that supports American private investment in developing nations and emerging market economies. OPIC programs are presently available for new and expanding businesses in some 150 countries worldwide. The program has generated positive net income for every year of operation since its inception in 1971. Since 1971, OPIC has supported investments worth nearly $200 billion and generated about $75 billion in U.S. exports. Although OPIC is primarily intended to promote U.S. investment abroad, it has played a significant role in expanding American exports. In 2011, OPIC approved a loan of up to $310 million for ex­panding Kenya’s geothermal plant. The funding will enable the plant to double its operating capacity and meet at least 5 percent of Kenya’s total power demand. OPIC-backed invest­ments in these countries are also likely to depend on a constant supply of U.S. components, supplies, or raw materials. In short, OPIC helps developing nations expand their economies and become viable markets for U.S. goods and services.

OPIC assists American investors through four principal activities designed to promote overseas investment and reduce associated risks. They are described in the following sections.

1. Financing Business through Loans and Loan Guarantees

OPIC provides intermediate- and long-term project financing through loans and loan guar­antees in countries where conventional financial institutions often are reluctant or unable to provide financing. All projects considered for financing must be commercially and finan­cially sound and must be managed by people with a proven track record of success in the same or a related business. OPIC, for example, carefully reviews whether the project will generate adequate cash flow to pay all operational costs, service all debt, and provide owners with an adequate return on their investments. The proceeds of OPIC financing may be spent for capital goods and services in the United States, the host country, or other, less-developed countries. The following are the major features of the program.

1.1. Ownership

Projects wholly owned by governments are not eligible. OPIC finances overseas ventures wholly owned by U.S. companies or joint ventures in which the U.S. investor has at least 25 percent equity. As a rule, at least 51 percent of the voting shares of the overseas venture must be held by the private sector. Financing is provided in cases in which the government holds majority ownership, provided that management remains in private hands.

1.2. OPIC Participation

OPIC assists in designing and coordinating the financial plan with other lenders and in­vestors. OPIC usually participates by providing up to 50 percent of the total cost of a new venture. The percentage is often higher in the case of an expansion of an existing business.

1.3. Financing and Loan Terms

For projects sponsored by U.S. small businesses or cooperatives, financing is provided through direct loans ranging from $100,000 to $10 million. Loan guarantees are often used for large-scale projects and range from $10 million to $250 million. The guaran­tees are issued to U.S financial institutions that are more than 50 percent owned by U.S. citizens, corporations, or partnerships. Foreign corporations that are at least 95 percent U.S. owned are also eligible. Funding sources include commercial banks, pension funds, and insurance companies. OPIC loans typically provide for a final maturity of five to fifteen years, following a certain grace period during which only interest is payable. For loan guarantees, OPIC charges the borrower a guarantee fee that may include an income­sharing provision.

2. Providing Support to Private Investments

OPIC provides finance to a number of privately owned and managed investment funds so that these funds can extend equity capital to facilitate business formation and expansion. Some funds invest primarily in small companies, whereas others invest in larger projects. Participation in equity ownership ranges from 5 to 40 percent of the company’s portfolio. To be eligible for funding, the overseas company must have a significant business connection with the U.S. economy and a positive impact on U.S. employment, the environment, and workers’ rights. OPIC-supported investment funds presently operate in Africa, East Asia, South America, and Eastern Europe.

3. Insuring Investments Against a Broad Range of Political Risks

OPIC offers many programs to insure investments in developing nations against political risk. The following risks are covered:

  1. Currency inconvertibility: the inability to convert profits, debt services, and other remit­tances from local currency into U.S. dollars.
  2. Expropriation: loss of investment due to expropriation, nationalization, or confiscation by the host government.
  3. Losses due to political violence: loss of assets or income due to war, revolution, civil war, ter­rorism, and so forth. An investor may purchase a separate policy for loss of business, loss of assets, or both. Coverage is available for new or existing investments. Special insurance programs are available for the following sectors: financial institutions, leases, oil and gas projects, natural resource projects, contractors, and exporters.

OPIC insurance is available to citizens of the United States, businesses created under U.S. law with majority ownership by U.S. citizens, and foreign companies in which a minimum of 95 percent of the equity is owned by U.S citizens.

4. Engaging in Outreach Activities

Outreach is mainly designed to inform the U.S. business community of investment oppor­tunities abroad.

Investments by OPIC clients may take many forms, including equity investments, loans, service contracts, leases, joint ventures, franchises, and other arrangements. In the event that the project is foreign owned, OPIC insures the portion of the project (investment) made by the U.S. investor. OPIC does not participate in projects subject to performance require­ments that would substantially undercut U.S. trade benefits from the investment (e.g., local content, maximum import, and minimum export requirements imposed by host states).

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

One thought on “Overseas Private Investment Corporation (OPIC)

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