“In 2014, more than 40 percent of its resources went to renewable energy projects. Environmental advocacy groups such as Greenpeace largely support OPIC’s recent emphasis on renewable energy, but still criticize OPIC’s continued support of energy-related projects that use fossil fuels.”
A small victory for taxpayers and cronyism foes occurred today with the expiration of the charter of the Overseas Private Investment Corporation (OPIC), a government lending agency. The agency is still open, but like its sister the Export-Import Bank (EXIM), whose charter expired this June 30, it cannot engage in new business.
OPIC and EXIM remain open to service existing loans, however, and reauthorization would bring them back to full life.
OPIC’s three key policy objectives are to:
OPIC pursues its mission by offering a variety of financial products including loan guarantees, direct loans, and political risk insurance. It also supports various investment funds.
Unlike most other government agencies, OPIC’s charter requires occasional reauthorization by Congress, without which it would be forced to close. That deadline was September 30, so barring last-minute Congressional action, OPIC’s authority has now lapsed.
That doesn’t mean OPIC immediately closes altogether—its employees will still come to work every day, and they will administer its existing $18 billion portfolio. They won’t be able to issue new financing, but they still have much to do.
Congress should refuse to renew OPIC’s charter, and should close the agency as its portfolio winds down. The rest of this post gives reasons why.
1. Big Business Bias
In a 2003 study, the Cato Institute’s Ian Vasquez and John Welborn found that OPIC’s top ten beneficiaries accounted for 87 percent of OPIC’s business in 2002. This was not an aberration.
In 2014, journalist Timothy P. Carney discovered such OPIC financing projects as $250 million for Sun Edison to build a solar farm in South Africa, and $150 million in insurance to subsidize new Citibank branches in politically risky countries such as Pakistan, Jordan, and Eqypt, while asking an important question: “Citibank is America’s third-largest bank, with total assets of $1.8 trillion, yet it can’t line up insurance without taxpayer backing?”
Veronique de Rugy of the Mercatus Center at George Mason University calls OPIC, along with the Export-Import Bank, “the poster children for programs that privilege big lenders,” noting that, “both programs extend loan guarantees allowing lenders—including many large banks such as JP Morgan, Citibank or Wells Fargo—to transfer most of the risk of doing business to U.S. taxpayers while cashing in large fees and interest payments (albeit at lower rates than commercial loans) from the borrowers.”
Other OPIC beneficiaries over the years have included large companies such as General Electric, Bank of America, Intergen, which is a joint venture of oil company Shell and engineering and construction firm Bechtel, Ritz-Carlton and Hyatt Hotels—and even the now-defunct Enron.
2. Ignores Developing Countries
One of OPIC’s primary missions is to spark economic development in developing countries. There are 48 countries the United Nations classifies as least-developed countries (LDCs). Yet these 48 LDCs accounted for less than 5 percent of OPIC’s business over the period 2011–2013. While this is still more than the LDCs’ 1.9 percent global share of total foreign direct investment, OPIC’s actions indicate that it prefers to do business with richer countries, not developing countries.
3. Green Energy Boondoggles
In recent years, OPIC has increasingly emphasized environmental factors in its investment decisions. In 2014, more than 40 percent of its resources went to renewable energy projects. Environmental advocacy groups such as Greenpeace largely support OPIC’s recent emphasis on renewable energy, but still criticize OPIC’s continued support of energy-related projects that use fossil fuels. As a post on the Greenpeace blog asked, “[W]hy should taxpayer funds be used at all to support an entrenched industry that doesn’t need so much help attracting investors?” That is a good question. But it is also worth asking why OPIC finances projects based on technologies that have yet to prove viable.
Some of OPIC’s green projects in 2014 include:
This short list is a beginning, rather than an ending. Many more examples are in OPIC’s most recent Annual Report. OPIC’s apparent capture by renewable energy special interests has been in the works for some time. Greenpeace and Friends of the Earth sued OPIC and the Export-Import Bank in 2002. They settled the suit in 2009, with both agencies agreeing to give millions of dollars to private corporations favored by Greenpeace and FOE.
In October 2009, following the settlement, OPIC put $505 million into six private equity funds which emphasize green investments. The Virgin Green Fund, the recipient of $100 million, is owned by Richard Branson, who has an estimated net worth of $5 billion. His fund focuses its efforts on North America and Europe, not the developing world. As noted elsewhere in this section, OPIC has emphasized renewable energy projects to the point where they now consume 40 percent of its business. If this makes environmental activists happy, it must make that sector’s corporate CEOs even happier.
4. Expensive, Yet Ineffective
OPIC’s 2014 annual report touts that the agency’s $2.96 billion of business that year supported 9,000 jobs. This amounts to nearly $329,000 per job “supported,” to use OPIC’s terminology. Note the clever terminology. OPIC supporters point only to jobs “supported,” rather than jobs “created” or “saved.” Such phrasing is vague enough to make OPIC look good without having to prove it actually does much of anything.
OPIC’s own numbers reveal it to be an incredibly inefficient way to support jobs, given that U.S. per capita GDP, one of the world’s highest, is only $54,629. This is important, since every time OPIC guarantees a loan to a big bank or a renewable energy company, it deprives less-connected entrepreneurs of that capital, even if the latter’s projects would create more value for people in developing countries.
OPIC has a number of others problems. The fact that it costs $329,000 per job supported is evidence enough that OPIC is bad at what it does. OPIC has been captured by big businesses, and in particular politically-connected renewable energy interests. While OPIC is good for them, it is bad for everyone else, including the developing countries OPIC’s mission states it is supposed to help.
OPIC might be well-intentioned, but its actual results are rather more cynical. Congress should refuse to renew OPIC’s expired charter, and arrange for the agency to close its doors. This would be a victory not just for small entrepreneurs, but for the world’s poorest people, each of whom OPIC hurts.
See also my recent paper, “The Case Against the Overseas Private Investment Corporation: OPIC Is Obsolete, Ineffective, and Harms the Poor”