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STATEMENT OF THE HONORABLE ROBERT MOSBACHER, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OVERSEAS PRIVATE INVESTMENT COPORATION

Before the
SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION AND TRADE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES

May 24, 2007

Thank you, Mr. Chairman, and Members of the Subcommittee. It is my privilege to appear before you today in support of the reauthorization of the Overseas Private Investment Corporation (OPIC).

When I accepted my current responsibilities as President and CEO nearly two years ago, I had a unique understanding of the agency, its mission and capabilities from the other side of the table. You see, as President of an energy business in Texas more than a decade ago, my company bought political risk insurance from OPIC. It was my first experience with the agency and my first recognition of the considerable potential of OPIC, which has only grown since.

The world has changed significantly over the last decade, but OPIC's mission, "to mobilize and facilitate the participation of United States private capital and skills in the economic and social development of less developed countries and areas.," remains as important as ever.

In every region of the world we see new examples of the transformative role that private investment and economic development can play in improving the quality of life for people, encouraging the growth of democratic institutions and the rule of law, and fostering political stability. OPIC is an important catalyst in this evolution.

OPIC in History

Created more than 35 years ago, OPIC's political risk insurance and financing help U.S. businesses of all sizes invest in 156 emerging markets and developing nations worldwide. By assisting U.S. private sector investment, OPIC fosters economic development in new and emerging markets, complements the private sector in managing risks associated with foreign direct investment, and supports U.S. foreign policy.

Pillars of success

By adhering to guidance from both the Congress and the Executive Branch, and staying true to our founding mission, OPIC has developed several pillars that have been at the heart of its success.

Development Mission:

Over its history, OPIC has supported $177 billion worth of investments that have helped developing countries to generate more than 800,000 host-country jobs and $13 billion in host-government revenues. This record of achievement has been augmented within OPIC by management guidance to seek out the most developmental projects and creation of new analytic tools to more effectively assess the development impact of our projects. As a development agency, OPIC does not compete with or crowd out the private sector. If a project can be financed or insured in the private sector, OPIC support is unnecessary. In fact, by working with the private sector, we are able to mobilize and lead private investment into those countries and areas that are most in need, supporting both development and foreign policy priorities.

It is noteworthy that OPIC's mission to promote development overseas does not come at the expense of our taxpayers here at home. Over 35 years, OPIC projects have supported more than 271,000 U.S. jobs and generated $71 billion in U.S. exports.

Perhaps more importantly, by charging market-based fees for its products, OPIC operates on a self-sustaining basis, at no net cost to the American taxpayer. In fact, OPIC regularly earns funds above expenses, called "net negative budget authority". For FY 2008, we anticipate that OPIC will generate approximately $159 million in net negative budget authority. Through prudent risk management, OPIC has accumulated reserves of over $5 billion.

In sum, OPIC represents not only an effective tool for responsible economic development, but a good deal for the American taxpayer as well.

Statutory Conditionalities:

Effectively implementing OPIC's statutory conditionalities is pivotal to the success of the agency in promoting the most developmental investment.

OPIC conducts an environmental assessment of each project and declines support for projects that would have an unreasonable or major adverse impact on the host country environment, or on the health or safety of workers in the host country. In all cases, OPIC expects projects to meet the more stringent of World Bank or host-country environmental, health or safety standards. For projects in sectors designated as "environmentally sensitive" a full Environmental Impact Assessment (EIA) must be submitted for OPIC's review. This EIA is posted on OPIC's website for a 60-day public comment period that is required before the Board of Directors considers such a project.

OPIC does not support projects that contribute to violations of internationally recognized worker rights. OPIC agreements require the investor to commit to respect these rights, including the rights of association, collective bargaining, and acceptable working conditions with respect to wages, hours of work, occupational health and safety and minimum age standards.

Importantly, OPIC supports only those projects that are not likely to harm the U.S. economy or have a negative effect on U.S. employment. By statute OPIC will not support "runaway plants," which substitute existing U.S. facilities with foreign plants to serve the same markets.

In addition, in consultation with the Department of State, OPIC undertakes a human rights review on each project.

OPIC remains involved in the project for the life of the loan or insurance. Specifically, OPIC systematically monitors investor compliance with U.S. economic, environmental, worker rights and corrupt practices representations through questionnaires, investor reporting and site visits on a sample basis.

To ensure that these conditionalities are properly implemented and coordinated for the agency as a whole, OPIC formed an Office of Investment Policy (OIP), with representation at the vice president level, which reviews and screens all OPIC projects. OIP also reviews and scores OPIC projects for developmental impact.

Dedicated Small Business Program:

In recent years OPIC has re-energized and focused its efforts in the service of U.S. Small and Medium Enterprises (SMEs).

An effective small business program provides the specialized services required by SMEs which normally begin the overseas investment process without the sophisticated systems and deep financial and personnel resources available to larger companies. To meet that need, OPIC established a Small and Medium Enterprise Finance Department (SMEF) that is responsible for OPIC's direct lending program. By simplifying procedures and implementing more aggressive cycle time requirements, OPIC has changed its relationship with U.S. small businesses for the better.

The proof of the program's success are in the results. More than 80% of all OPIC projects approved in FY 2006 were U.S. SME projects. This contrasts with only 18% OPIC supported SME projects ten years ago.

OPIC is now preparing to take its small business program to the next level. Next month OPIC will formally launch the Enterprise Development Network (EDN), a strategic alliance among U.S. financial institutions and others certified by OPIC, that will facilitate efficient delivery of OPIC funding to developmental and creditworthy U.S. SME projects. EDN will leverage the extensive grassroots networks of participating financial institutions and extend the reach of OPIC's growing small business programs.

Focus on Under-Served Regions:

By focusing on under-served regions, OPIC can mitigate private sector risk, and mobilize and lead capital for developmental purposes where it is needed most. This is particularly evident in areas of high foreign policy interest in the greater Middle East, sub-Saharan Africa and Central America. Current projects that best illustrate this are in:

Afghanistan - OPIC financing will support the construction of a 209 room hotel to be managed by Marriot International in Kabul, Afghanistan. Beyond providing modern accommodations for visitors, including potential investors, the project will generate several million dollars in foreign exchange annually, and create 270- permanent jobs for local Afghans.

Lebanon - OPIC is supporting the international initiative to rebuild the Lebanese economy following last summer's hostilities. OPIC is partnering with Citigroup in a loan facility that will mobilize up to $160 million in private capital for home reconstruction, mortgage financing and small and medium sized enterprises.

Zambia - OPIC continues to target the most developmental investments in sub-Saharan Africa. In Zambia, a $46 million OPIC loan is facilitating mortgage financing for 5,000 new homes in Lusaka.

In Central America, the modest size of national economies creates an opportunity for private capital, supported by OPIC, to have a significant developmental impact. In 2006 I made two trips to the region, announcing more than $300 million in investment microfinance, housing and power, among other sectors.

By focusing on these four pillars, OPIC has organized itself for success.

2003 Reauthorization

In OPIC's last reauthorization, the Congress set out two specific objectives for the agency. First the Congress directed that OPIC create an "Accountability Mechanism" to provide problem-solving and compliance review services in a manner that is fair, objective and transparent, to enhance OPIC's mission effectiveness. Second, the Congress directed that OPIC continue its work on a transparency initiative to heighten transparency and information disclosure concerning OPIC's projects consistent with existing statutes and laws. I am pleased to report to the Subcommittee that OPIC has taken concrete actions on both of these objectives.

Office of Accountability:

In February 2005, with the agreement of OPIC's Board of Directors, OPIC created the independent Office of Accountability (OA) within OPIC. The agency subsequently hired a Director to staff the office, reporting directly to the President & CEO. The Director has been active in promoting the program and responsive to issues raised with the Office.

Transparency Initiative:

When I assumed office in 2005, I took a personal interest in OPIC's transparency activities. Having been an international businessman in the private sector, I saw first hand the deleterious effects of corruption and a lack of transparency on both development and the investment environment. Moreover, I am personally convinced that profitable international investment is completely compatible with evolving best practices for corporate social responsibility, specifically with regard to anti-corruption measures and transparency.

Fighting corruption and ensuring transparency are deeply tied to OPIC's developmental mission. The benefits of our foreign economic policy objectives can only be achieved when OPIC supported projects are openly channeled to promote host countries' economic growth and not corruptly diverted for personal enrichment. With this in mind, I was pleased to announce the OPIC "Anti-Corruption and Transparency Initiative" last September, which expanded and enhanced measures that had previously been discussed with the agency's stakeholders. The Initiative had five key components:

EITI - OPIC formally endorsed the principles of the Extractive Industries Transparency Initiative (EITI) which supports improved governance in resource rich, developing countries through the full publication and verification of company payments and government revenues for oil, gas and mining ventures. The agency will encourage its sponsors in these sectors to join the EITI as well. The goal is to ensure that revenues from extractive industries in developing countries contribute to sustainable development and poverty reduction.

Anti-Corruption - OPIC defines corruption broadly and through its due-diligence and other processes takes many steps to insure that its projects are corruption free. OPIC also believes it is important to help educate our investors as to how they can eliminate corruption in its projects. In that regard, OPIC created and posted on its website an Anti-Corruption Handbook that provides OPIC sponsors and other interested parties with a comprehensive approach to fight corruption. OPIC is also working with other agencies and organizations to sponsor an anti-corruption compliance program workshop for small business. In addition, OPIC established a dedicated corruption "hotline", allowing sponsors to receive compliance guidance and to report allegations of fraud in connection to OPIC sponsored projects.

Enhanced Character Risk Due Diligence - Building on its existing best practices, OPIC enhanced its internal due diligence procedures with regard to character risk in its projects.

Improved Coordination with Locally Affected Communities - For projects with "significant social impacts", OPIC now requires project sponsors to formally consult with locally affected communities.

Improved Information Disclosure/Collection - Through its redesigned website OPIC agreed to post additional non-business confidential project information to improve its project transparency, and to provide greater stakeholder input on information collection.

I believe that through these measures, OPIC has been responsive to the guidance of the Congress and the evolving best practices in international investment, transparency and accountability. We will continue to evolve with those standards.

Looking Forward

I personally believe that we live in a distinctive period of history. This is a time of dynamic economic and political change, which creates a unique opportunity. Over the past 25 years we have we have seen the emergence of new and hopeful paradigms for development beyond that provided by traditional Official Development Assistance (ODA). We have seen the rise of Non-Government Organization (NGOs) and non-profits that bring unique technical skill sets. We have also seen the tremendous resources of corporations and corporate philanthropy that dwarf the means at the disposal of the U.S. government to promote development.

I believe that one of the opportunities we have today is to mobilize the ingenuity, creativity, experience and resources at the disposal of the U.S. Government, the NGO community and the American private sector, and use that assembled talent to decisively promote responsible economic and social development in the developing world.

Entrepreneurship - risk taking to promote a better life - is part of our national character. Fully realized in our international development policy, it is also one of our most potent tools in the fight against global poverty. If we can work together, this type of economic empowerment could also make contributions to our security similar to those of our generals and diplomats.

Enhanced Inter-Agency Coordination:

I believe that an important part of how we think about international development and investment begins with a clear focus on our programs in the Executive Branch. The U.S. government brings significant resources to bear in developing countries; from U.S. Agency for International Development (USAID) grants and technical assistance, Millennium Challenge Corporation (MCC) Compacts, U.S. Trade and Development Agency (TDA) feasibility studies, to Export-Import Bank (EX-IM) export financing to name a few. We work well together now, but we can always do more, both for the sake of our foreign economic development goals, as well as for the efficiency that we owe American taxpayers.

To that end, OPIC has been diligent in promoting inter-agency cooperation and collaboration with our colleagues in the Executive Branch. We have met with the senior leadership of MCC, EX-IM and other agencies and departments. Our close cooperation with USAID has seen meaningful results. For instance, in the Zambia project referenced above, USAID technical assistance and loan guaranties extended through the Development Credit Authority (DCA) have been essential to the success of the Lusaka housing project. OPIC and USAID have also had close cooperation in Afghanistan, and Lebanon.

I am committed to working with my inter-agency partners to continue this process.

Catalytic Tools for Development - Access to Capital:

It is my firm belief that one of the most effective and catalytic tools to promote development is the ability to provide credit on affordable terms. OPIC has endeavored to do this in three ways.

First, by extension of microfinance facilities, which offers an effective means to reach those at the bottom of the economic strata, OPIC created opportunities for commercial banks to play a role in this sector so critical to the development of countries most in need. For example by partnering with Citigroup, OPIC has approved a $70 million loan guaranty that will provide financing for up to 50 emerging Micro-Finance Institutions (MFIs) in more than 30 countries. OPIC has also played a leadership role in helping microfinance organizations to access international capital markets.

Second, through partnerships with U.S. and local banks, OPIC is positioned to extend credit to the market segment that is just above micro. In so doing, we not only provide dynamic capital infusion to promote job creation and economic growth, but we are also transferring essential banking and finance skills to local markets. For instance, through a lending facility supported by OPIC, Wachovia Bank is providing a $25 million loan to Banco Atlantida in Honduras; proceeds of the loan will be used by the Honduran bank to expand its lending to small- and medium-sized enterprises.

And third, OPIC can provide access to capital through its Investment Funds program, which helps entrepreneurs raise critically needed equity capital, to promote growth and jobs. OPIC currently manages a portfolio of 31 funds, chosen through a competitive selection process on a geographic or sector specific basis. OPIC provides one-third to one-half of the fund capital with guaranteed debt, with the fund manager raising the rest. Over 90% of the companies supported through OPIC investment funds in host countries are small businesses.

Through these three vehicles, OPIC can help build developing economies through investment in their best commodity, human capital.

Catalytic Tools for Development - Housing:

There are few tools of development as catalytic and developmentally beneficial as housing. As the United States discovered fifty years ago, housing has tremendous transformative power. It provides shelter, but it is also a store for wealth, a bulwark of the financial system, a job creator for the overall economy, an asset upon which to build businesses, a defining element of every community, and most importantly, that thing which we call home, which is bigger than the bricks, mortar, and shingles that make-up the house.

OPIC supported housing projects address discrete parts of the industry: home construction, housing related infrastructure like sewer, water, and electricity, property titling, and long-term mortgage finance that will allow more and more citizens in developing countries to purchase their homes.

In Tanzania, for example, a U.S. small business is using OPIC political risk insurance as part of a program to assist in the construction of 5,000 homes in major cities throughout Tanzania. Beyond the provision of shelter, the housing will have access to required infrastructure including roads and utilities. In Ghana, OPIC has financed a Ghanaian-American joint venture that is helping middle income families obtain mortgages for the first time.

To date OPIC has approved nearly $1 billion in housing projects, which, when fully implemented will result in over 450,000 units of housing. Additionally, the outlook for more is bright with $1.5 billion of additional housing projects currently in the project pipeline.

Jump Starting Investment in Strategic Regions:

Operating under the foreign policy guidance of the Department of State, OPIC has recognized that there are countries that have taken bold steps toward democracy or economic reforms. Some of these countries are emerging from years of war or social upheaval and deserve our focus to "jump-start" economic growth.

There is a tendency in these situations to believe that the local private sector can only be effective if all the regulatory and legal requirements have been implemented. This is a process that can take years in a post-conflict situation. However, it has been my experience that instead of looking at regulatory and legal regimes as a prerequisite to private sector investment, they can occur simultaneously. In these cases, the private sector investment not only serves to jump-start tangible economic growth and jobs, but also reinforces reform.

It is with this scenario in mind that OPIC created the Rapid Economic Development Initiative (REDI). REDI seeks to kick-start investment in countries such as Afghanistan, Lebanon, Liberia and other high priority counties where visible economic progress is critical to maintaining political stability.

I have already mentioned OPIC's work in Lebanon. Another excellent example is our work in Liberia and the U.S. Government's commitment to President Ellen Johnson-Sirleaf. Working with Robert L. Johnson, founder of Black Entertainment Television (BET), OPIC and other parties have approved the formation of a $30 million Liberia Enterprise Development Fund. The facility will provide capital investment and support to promote private enterprise and job creation critical to rebuilding social and economic foundations in Liberia. Through innovative structures and a commitment to results, OPIC can help drive results such as this.

We also consider outreach efforts. In February, OPIC cosponsored a very successful forum to promote private sector investment in Liberia, attended by President Johnson-Sirleaf, which attracted over 300 participants.

2007 Reauthorization Proposal

Mr. Chairman, with this broad and diverse range of ongoing activity, OPIC's reauthorization proposal is straight forward. OPIC is principally seeking a four year extension of our charter.

In addition, as a result of our consultations with the Congress in the lead up to reauthorization, we adopted the suggestion that the current authority for OPIC to operate in Iraq contained in other bills since 2003, be included in the Foreign Assistance Act.

Other changes are strictly technical and conforming in nature and include: