Overseas Private Investment Corporation Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The Overseas Private Investment Corporation (OPIC) has played a vital role in advancing globalization for over three and a half decades. It does so by encouraging outward foreign investment by U.S. businesses to developing countries. Established in 1971, OPIC is an agency of the U.S. government that advances the economic development of new and emerging markets. To this end, OPIC has the responsibility of aiding U.S. companies to invest in a wide variety of overseas development projects.

OPIC performs its central responsibility by: (1) financing U.S. companies through direct loans and loan guarantees to eligible investment projects in developing countries and emerging markets; and (2) providing political risk insurance to U.S. development companies against the uncertainties of political instability, currency conversion issues, and expropriation possibilities (i.e., the risk that a host government will confiscate the assets—such as a factory, inventory, bank accounts—of foreign businesses). Funding for OPIC operations and services comes from market-based fees it charges for its products and services. Consequently, OPIC is a self-sustaining agency. OPIC provides funding and insurance to U.S. investors, contractors, exporters, and financial institutions. To assess appropriate countries, industries, and companies in which to invest, OPIC undertakes economic and market analyses of products, firms, and nations; these studies are done either in-house or are subcontracted on a competitive basis to outside consulting firms.

OPIC spreads its investment activity over a wide geographical area, including (but not limited to) sub-Saharan and northern Africa, eastern Europe and Russia, Latin America and the Caribbean, the Middle East, and Asia and the Pacific. As of 2008, OPIC invested in U.S. companies undertaking development work in over 150 countries dispersed throughout these (and other) regions. OPIC’s mission in its financing function is to complement the private sector and provide financing in countries where conventional financial institutions are unable to finance on the required scale.

OPIC divides its financing role into two categories, depending on the size of the U.S. company looking to undertake international development projects. On one end of the size spectrum are the small and medium-sized enterprises with annual revenues of less than $250 million, and at the other end of the scale are the larger companies with annual revenues over $250 million. In this latter case, the investment is generally for projects that require large amounts of capital, such as infrastructure, telecommunications, power, water, housing, airports, hotels, high-tech industries, financial services, and the natural resource extraction industry. If projects require capital in excess of what OPIC itself can support because of resource limitations and regulatory restrictions, OPIC will work with colenders to extend its resource base for certain projects.

In general, OPIC provides support for the creation of privately owned and managed investment funds that make direct equity and equity-related investments in companies—often small and medium enterprises (SMEs)—within newly emerging market economies. As part of its financing function, OPIC facilitates the transfer of information, skills, and expertise from U.S. companies and their management team to their counterparts in the developing countries, and thus aids the latter in achieving self-sufficiency that extends beyond the life of the particular project.

OPIC sources indicate that, from 1991 through 2007, the corporation has committed close to $3 billion in funding to approximately 40 private equity funds. These funds, in turn, have invested approximately $3.5 billion in over 400 privately owned and managed companies operating in over 50 developing countries worldwide. OPIC’s credit-based support of such funds that invest in companies creates a multiplier effect in attracting additional foreign direct investment in, and international financing of, companies in the developing and newly emerging countries.

OPIC’s function in reducing the risk of doing business abroad is an important part of its mission in facilitating American companies to invest in international development projects. Many companies shy away from foreign direct investment in the face of perceived political (and other types of ) risk. This reticence is in large part the result of the difficulty in constructing a business model for undertaking foreign investments when the possibility of political problems that can arise and threaten project success is a real concern and, moreover, is generally unpredictable over a number of dimensions. OPIC thus encourages private investment in developing countries through its political risk insurance.

As an agency of the U.S. government, OPIC operates through funding provided by Congress. In 2008 OPIC’s authorization was extended in the Consolidations Appropriations Act of 2008 (P.L. 110–161). This Act provides $47.5 million for OPIC’s 2008 administrative expenses and allows a transfer of $20 million from OPIC’s noncredit account to fund its credit program.

Bibliography:

Congressional Research Report, The Overseas Private Investment Corporation: Background and Legislative Issues (May 22, 2008);
John D. Daniels, Lee H. Radebaugh, and Daniel Sullivan, International Business: Environments and Operations (Pearson Prentice Hall, 2009);
Charles W. L. Hill, International Business: Competing in the Global Marketplace (McGraw-Hill Irwin, 2009);
Sanford L. Moskowitz, The International Automotive Parts Industry (Overseas Private Investment Corporation, 1986);
Overseas Private Investment Corporation, opic.gov (cited March 2009).

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