The New York Times published on 13 January 2019 an article titled "Competing against Chinese Loans, U.S. Companies Face Long Odds" by Edward Wong.
Using competition in Uganda between an American consortium and Chinese companies to build a new oil refinery, the author documents the difficulty competitors face when they go up against Chinese companies that have access to much greater Chinese government financing.
Showing posts with label OPIC. Show all posts
Showing posts with label OPIC. Show all posts
Sunday, January 13, 2019
Tuesday, October 23, 2018
The US International Development Finance Corporation, Africa and China
The Center for Strategic and International Studies (CSIS) published on 12 October 2018 a useful discussion of the new US International Development Finance Corporation (USIDFC) titled "The BUILD Act Has Passed: What's Next?" by Daniel F. Runde and Romina Bandura.
While it is generally acknowledged that the USIDFC is a response to China's increased financing of projects globally, some accounts suggest this new agency can match what China is offering. Thi CSIS study makes clear that the USIDFC is a significant new tool for the United States but not equivalent to what China has been doing and continues to do. USIDFC merges the Overseas Private Investment Investment Corporation (OPIC) and several pieces of USAID. It raises the spending cap of the former OPIC from $29 billion to $60 billion for USIDFC, which can make loans or loan guarantees, acquire equity or financial interests in entities as a minority investor, provide insurance or reinsurance to private sector entities, and provide technical assistance.
Like OPIC, USIDFC has a global reach. Between 2000 and 2014, only 18 percent of OPIC's total commitments went to Sub-Saharan Africa according to a study by the Center for Global Development. In 2017, 27 percent of OPIC's portfolio was devoted to Sub-Saharan Africa. As of the beginning of 2018, just over $7 billion of OPIC's cumulative portfolio supported projects in Sub-Saharan Africa. This contribution to African development has been important and is destined to increase under the more generously funded USIDFC, but it has a long way to go before it competes with Chinese funding. China announced a $60 billion, three-year financial package for all of Africa in 2015 and another $60 billion, three-year package in 2018. While the funding by China and the USIDFC is not entirely comparable, the difference in amounts is stark. One way the United States can help address this gap is to revive and increase funding for the US Export-Import Bank.
While it is generally acknowledged that the USIDFC is a response to China's increased financing of projects globally, some accounts suggest this new agency can match what China is offering. Thi CSIS study makes clear that the USIDFC is a significant new tool for the United States but not equivalent to what China has been doing and continues to do. USIDFC merges the Overseas Private Investment Investment Corporation (OPIC) and several pieces of USAID. It raises the spending cap of the former OPIC from $29 billion to $60 billion for USIDFC, which can make loans or loan guarantees, acquire equity or financial interests in entities as a minority investor, provide insurance or reinsurance to private sector entities, and provide technical assistance.
Like OPIC, USIDFC has a global reach. Between 2000 and 2014, only 18 percent of OPIC's total commitments went to Sub-Saharan Africa according to a study by the Center for Global Development. In 2017, 27 percent of OPIC's portfolio was devoted to Sub-Saharan Africa. As of the beginning of 2018, just over $7 billion of OPIC's cumulative portfolio supported projects in Sub-Saharan Africa. This contribution to African development has been important and is destined to increase under the more generously funded USIDFC, but it has a long way to go before it competes with Chinese funding. China announced a $60 billion, three-year financial package for all of Africa in 2015 and another $60 billion, three-year package in 2018. While the funding by China and the USIDFC is not entirely comparable, the difference in amounts is stark. One way the United States can help address this gap is to revive and increase funding for the US Export-Import Bank.
Monday, October 15, 2018
Will New US Agency Match China's Financing in Africa?
The New York Times published on 14 October 2018 an article titled "Trump Embraces Foreign Aid to Counter China's Global Influence" by Glenn Thrush.
This is a good account of the new US International Development Finance Corporation (IDFC) that has the authority to provide up to $60 billion in loans, loan guarantees, and political risk insurance to companies willing to invest in developing countries.
It is important to understand that the funding is NOT limited to Africa and will probably be used more frequently in Asia and Latin America. This bipartisan effort won the support of the Trump administration once it was cast as a way to compete with China. While it is a welcome addition to US tools for competing with China and other investors in the developing world, there should be no illusions about its impact in Africa. The $60 billion is a cap covering an undetermined number of years. It doubles the cap of the Overseas Private Investment Corporation (OPIC), which IDFC has replaced. OPIC's global exposure as of 2017 was $23 billion with about $6 billion of this or 27 percent going to Sub-Saharan Africa. OPIC funding favored safe investments; IDFC can be expected to follow a similar policy. China will likely remain a significantly more important source of lending to Africa even with the creation of the IDFC.
This is a good account of the new US International Development Finance Corporation (IDFC) that has the authority to provide up to $60 billion in loans, loan guarantees, and political risk insurance to companies willing to invest in developing countries.
It is important to understand that the funding is NOT limited to Africa and will probably be used more frequently in Asia and Latin America. This bipartisan effort won the support of the Trump administration once it was cast as a way to compete with China. While it is a welcome addition to US tools for competing with China and other investors in the developing world, there should be no illusions about its impact in Africa. The $60 billion is a cap covering an undetermined number of years. It doubles the cap of the Overseas Private Investment Corporation (OPIC), which IDFC has replaced. OPIC's global exposure as of 2017 was $23 billion with about $6 billion of this or 27 percent going to Sub-Saharan Africa. OPIC funding favored safe investments; IDFC can be expected to follow a similar policy. China will likely remain a significantly more important source of lending to Africa even with the creation of the IDFC.
Friday, October 12, 2018
Aid to Africa: China and the US
The Diplomat published on 11 October 2018 a commentary titled "Aiding Africa: If Not China, Then Who?" by Grace Guo, Vienna-based researcher.
The focus of the article is the large amount of concessionary loans that China has provided to Africa in recent years and whether there is any alternative to Chinese financing. It is important to understand that collectively, international financial institutions and Western countries provide far more financing to Africa than does China.
The commentary is misleading on several other points. The title suggests that Chinese loans constitute aid. While China's loans are significant and often fill a financing void not met by other sources, it is usually not aid. Most of the loans must be repaid with interest.
In recent years, US aid to Africa has been averaging about $8 billion annually versus about $2.5 billion in aid annually from China. United States' aid is in the form of grants. While the United States does not provide loans to Africa, there is no reason to be defensive about the amount of aid that it offers. In addition, Chinese loans are usually offered in connection with infrastructure projects that are contractually tied to Chinese companies, thus keeping much of the financing in China.
The commentary implies that a new American institution, the International Development Finance Corporation (IDFC), might be the answer to competing with China's loans to Africa. The IDFC replaces the Overseas Private Investment Corporation (OPIC) and several components of USAID. At $60 billion, the IDFC's maximum contingent liability limit is about double that of the former OPIC. The IDFC is a welcome addition to US financial institutions but when it comes to competing with Chinese loans one must be careful. The $60 billion is a GLOBAL cap; this is not an Africa only program. Conventional wisdom suggests that most of the financial support will go to projects in Asia. The portion that is designated for Africa is likely to be well under the amount of new loan activity offered by China.
The commentary suggests that China's $60 billion financial pledge over three years at the 2018 Forum on China Africa Cooperation (FOCAC) is a "doubling down" of its financial pledge at the 2015 FOCAC. This is misleading. China also pledged $60 billion over three years at FOCAC in 2015. In addition, the financial package for 2018 includes $10 billion whereby China "will encourage" companies to invest in Africa. Chinese companies are routinely investing in Africa, as are American companies. It is difficult to understand why this has been included as part of the new $60 billion package.
Finally, the commentary notes that 70 percent of Kenya's debt is held by China. This repeats a common mistake about Kenyan debt. China does hold 72 percent of Kenya's BILATERAL external debt, but this is only part of Kenya's total external debt. When you include Kenya's debt owed to international financial institutions and commercial banks, China holds only 21 percent of Kenya's external debt.
The focus of the article is the large amount of concessionary loans that China has provided to Africa in recent years and whether there is any alternative to Chinese financing. It is important to understand that collectively, international financial institutions and Western countries provide far more financing to Africa than does China.
The commentary is misleading on several other points. The title suggests that Chinese loans constitute aid. While China's loans are significant and often fill a financing void not met by other sources, it is usually not aid. Most of the loans must be repaid with interest.
In recent years, US aid to Africa has been averaging about $8 billion annually versus about $2.5 billion in aid annually from China. United States' aid is in the form of grants. While the United States does not provide loans to Africa, there is no reason to be defensive about the amount of aid that it offers. In addition, Chinese loans are usually offered in connection with infrastructure projects that are contractually tied to Chinese companies, thus keeping much of the financing in China.
The commentary implies that a new American institution, the International Development Finance Corporation (IDFC), might be the answer to competing with China's loans to Africa. The IDFC replaces the Overseas Private Investment Corporation (OPIC) and several components of USAID. At $60 billion, the IDFC's maximum contingent liability limit is about double that of the former OPIC. The IDFC is a welcome addition to US financial institutions but when it comes to competing with Chinese loans one must be careful. The $60 billion is a GLOBAL cap; this is not an Africa only program. Conventional wisdom suggests that most of the financial support will go to projects in Asia. The portion that is designated for Africa is likely to be well under the amount of new loan activity offered by China.
The commentary suggests that China's $60 billion financial pledge over three years at the 2018 Forum on China Africa Cooperation (FOCAC) is a "doubling down" of its financial pledge at the 2015 FOCAC. This is misleading. China also pledged $60 billion over three years at FOCAC in 2015. In addition, the financial package for 2018 includes $10 billion whereby China "will encourage" companies to invest in Africa. Chinese companies are routinely investing in Africa, as are American companies. It is difficult to understand why this has been included as part of the new $60 billion package.
Finally, the commentary notes that 70 percent of Kenya's debt is held by China. This repeats a common mistake about Kenyan debt. China does hold 72 percent of Kenya's BILATERAL external debt, but this is only part of Kenya's total external debt. When you include Kenya's debt owed to international financial institutions and commercial banks, China holds only 21 percent of Kenya's external debt.
Monday, August 6, 2018
A US Response to China's Infrastructure Construction in Africa?
CNBC posted on 2 August 2018 a story titled "Wilbur Ross and Chris Coons: China Is 'Pouring Money into Africa.' Here's How the US Can Level the Playing Field." Wilbur Ross is the US Secretary of Commerce and Chris Coons is a Democratic Senator from Delaware.
The two officials agree that the US must do more to present America's African partners with better alternatives to state-led economic models, which are promoted by countries like China, so Africa can assume its rightful place in the global economy. Consequently, they are urging passage of the "Better Utilization of Investment Leading to Development Act of 2018" that would reform and modernize government development finance by establishing the U.S. International Development Finance Corporation. The new organization would consolidate the existing Overseas Private Investment Corporation (OPIC) and USAID's Development Credit Authority (DCA).
While this proposal is a step in the right direction, it is important to put it in perspective. In 2017, OPIC and DCA together obligated $46 million globally to support loans and loan guarantees. The President's 2019 budget request for the proposed new consolidated corporation is $94 million. Compared to the billions of dollars that China makes available to support loans and loan guarantees, this is a rounding error. It will not level the playing field.
The two officials agree that the US must do more to present America's African partners with better alternatives to state-led economic models, which are promoted by countries like China, so Africa can assume its rightful place in the global economy. Consequently, they are urging passage of the "Better Utilization of Investment Leading to Development Act of 2018" that would reform and modernize government development finance by establishing the U.S. International Development Finance Corporation. The new organization would consolidate the existing Overseas Private Investment Corporation (OPIC) and USAID's Development Credit Authority (DCA).
While this proposal is a step in the right direction, it is important to put it in perspective. In 2017, OPIC and DCA together obligated $46 million globally to support loans and loan guarantees. The President's 2019 budget request for the proposed new consolidated corporation is $94 million. Compared to the billions of dollars that China makes available to support loans and loan guarantees, this is a rounding error. It will not level the playing field.
Thursday, September 7, 2017
How US Companies Can Compete with China in Africa
The Atlantic Council in Washington released on 7 September 2017 two issue briefs concerning possibilities for doing business in Africa, especially in light of significant Chinese competition. The first paper is titled "Escaping China's Shadow: Finding America's Competitive Edge in Africa" by Aubrey Hruby, a senior fellow at the Atlantic Council's Africa Center. The paper identifies the following five sectors as good prospects for American business: professional and business services; financial services; media, entertainment and information; agribusiness; and renewable energy.
A companion paper, which focuses on the nature of African consumers, is titled "Capturing the African Consumer Market: Truths, Trends, and Strategies for the Road Ahead" by Aleksandra W. Gadzala, a geopolitical risk consultant.
A companion paper, which focuses on the nature of African consumers, is titled "Capturing the African Consumer Market: Truths, Trends, and Strategies for the Road Ahead" by Aleksandra W. Gadzala, a geopolitical risk consultant.
Thursday, September 22, 2016
US Trade and Investment with Africa
The White House published on 21 September 2016 a fact sheet titled "U.S.-Africa Cooperation on Trade and Investment Under the Obama Administration."
This document offers a good summary of U.S. programs and efforts to increase trade and investment with Africa. U.S. investment in Africa has increased impressively from a total of $37 billion in 2008 to $64 billion in 2015. Trade, on the other hand, has dropped sharply from $142 billion in 2008 to $52 billion in 2015. Most of the decline is accounted for as a result of reduced oil imports from Africa following fracking in the United States.
This document offers a good summary of U.S. programs and efforts to increase trade and investment with Africa. U.S. investment in Africa has increased impressively from a total of $37 billion in 2008 to $64 billion in 2015. Trade, on the other hand, has dropped sharply from $142 billion in 2008 to $52 billion in 2015. Most of the decline is accounted for as a result of reduced oil imports from Africa following fracking in the United States.
Thursday, July 11, 2013
New Initiatives During Obama Trip to Africa
During his trip to Senegal, South Africa and Tanzania from 26 June 2013 until 3 July 2013, President Barack Obama announced three key initiatives. While there was far too much focus in the press on issues such as the high cost of the trip (all presidential travel is expensive for security reasons), it will increasingly be associated with the three key initiatives: Power Africa, Trade Africa and the Washington Fellowship for Young African Leaders.
The White House released on 30 June 2013 "Fact Sheet: Power Africa," which explains that the initiative will double access to power in sub-Saharan Africa by adding more than 10,000 megawatts of efficient electricity generation capacity. Initial partners include Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. Power Africa will also work with Uganda and Mozambique on responsible oil and gas management. The U.S. will commit more than $7 billion to the effort over the next 5 years. For example, USAID will provide $285 million in technical assistance; the Overseas Private Investment Corporation up to $1.5 billion in financing and insurance for energy projects; U.S. Export-Import Bank up to $5 billion in support of U.S. exports for the development of power projects; and the Millennium Challenge Corporation up to $1 billion in African power systems. Power Africa will leverage private sector investment, beginning with more than $9 billion from companies such as General Electric, Heirs Holding and Symbion Power.
The White House released on 1 July 2013 "Fact Sheet: Trade Africa," which will focus initially on the members of the East African Community (EAC)--Burundi, Kenya, Rwanda, Tanzania and Uganda. Trade Africa aims to double intra-regional trade in the EAC, increase EAC exports to the U.S. by 40 percent, reduce by 15 percent the average time needed to import or export a container from the ports of Mombasa and Dar es Salaam to land-locked Burundi and Rwanda, and decrease by 30 percent the average time a truck takes to transit selected borders. Trade Africa may eventually expand to other African regions.
The President announced the third initiative concerning interaction with African youth in South Africa on 29 June 2013. The Washington Fellowship for Young African Leaders beginning in 2014 will bring more than 500 young African leaders to the U.S. each year for leadership training and mentoring. They will spend 6 weeks at top American universities in tailored training programs and have the opportunity to participate in internships in the private and public sectors. Microsoft, for example, will connect Washington Fellows with internships at their offices across Africa. Ethiopian Airlines will offer participants the opportunity to train at their business management and corporate governance platforms around the world. The U.S. will award more than $5 million in small grants to Washington Fellows who seek to start their own businesses or social enterprises. USAID will establish regional hubs and coordinators to connect Washington Fellows to these opportunities and leverage over $200 million in ongoing youth programs.
Everything considered, not a bad result for a visit that received surprisingly little press coverage--and much of that negative.
The White House released on 30 June 2013 "Fact Sheet: Power Africa," which explains that the initiative will double access to power in sub-Saharan Africa by adding more than 10,000 megawatts of efficient electricity generation capacity. Initial partners include Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. Power Africa will also work with Uganda and Mozambique on responsible oil and gas management. The U.S. will commit more than $7 billion to the effort over the next 5 years. For example, USAID will provide $285 million in technical assistance; the Overseas Private Investment Corporation up to $1.5 billion in financing and insurance for energy projects; U.S. Export-Import Bank up to $5 billion in support of U.S. exports for the development of power projects; and the Millennium Challenge Corporation up to $1 billion in African power systems. Power Africa will leverage private sector investment, beginning with more than $9 billion from companies such as General Electric, Heirs Holding and Symbion Power.
The White House released on 1 July 2013 "Fact Sheet: Trade Africa," which will focus initially on the members of the East African Community (EAC)--Burundi, Kenya, Rwanda, Tanzania and Uganda. Trade Africa aims to double intra-regional trade in the EAC, increase EAC exports to the U.S. by 40 percent, reduce by 15 percent the average time needed to import or export a container from the ports of Mombasa and Dar es Salaam to land-locked Burundi and Rwanda, and decrease by 30 percent the average time a truck takes to transit selected borders. Trade Africa may eventually expand to other African regions.
The President announced the third initiative concerning interaction with African youth in South Africa on 29 June 2013. The Washington Fellowship for Young African Leaders beginning in 2014 will bring more than 500 young African leaders to the U.S. each year for leadership training and mentoring. They will spend 6 weeks at top American universities in tailored training programs and have the opportunity to participate in internships in the private and public sectors. Microsoft, for example, will connect Washington Fellows with internships at their offices across Africa. Ethiopian Airlines will offer participants the opportunity to train at their business management and corporate governance platforms around the world. The U.S. will award more than $5 million in small grants to Washington Fellows who seek to start their own businesses or social enterprises. USAID will establish regional hubs and coordinators to connect Washington Fellows to these opportunities and leverage over $200 million in ongoing youth programs.
Everything considered, not a bad result for a visit that received surprisingly little press coverage--and much of that negative.
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