Mr. Chairman and Members of the Committee:
Thank you, Chairman Sarbanes and Members of this Committee, for the strong leadership and support you have given toward establishing a coordinated United States trade program. It is a privilege for me to join in this panel today with my distinguished colleagues from the Commerce Department, Small Business Administration, Export-Import Bank (Ex-Im Bank) and Trade and Development Agency (TDA).
As you have heard today, the Trade Promotion Coordination Committee (TPCC) is poised to assess and reinvigorate a unified trade program for the U.S. Government, a particularly important responsibility given the economic disruption which we have experienced since the tragedy of September 11.
Our success will be driven considerably by the guidance and vision which Secretary of Commerce Don Evans has given the TPCC, in part based on his long years of private business experience, and by the strong leadership of Under Secretary of International Trade Grant Aldonas, who has helped develop the blueprint before you today.
Even before the creation of the TPCC, the Overseas Private Investment Corporation (OPIC) has had a long tradition of cooperation with its sister agencies. Today, I pledge to build and strengthen that relationship.
OPIC plays a vital role in the economic and social development of less developed countries and areas, as well as countries in transition from non-market economies. These countries look to U.S. investment to help create jobs, improve infrastructure, generate goods and services, and thereby contribute to economic growth and the creation of free-market systems.
As a developmental agency, OPIC can help stabilize financial markets in the developing world by facilitating U.S. private investment in countries most in need of support and economic development.
As the primary U.S. Government agency focused on private sector investment in exclusively the developing world and emerging economies, OPIC builds on the premise that trade is the initial step in the international expansion of a company. Only after a manufacturing company is comfortable with the establishment of export relationships and is confident of an overseas market for its products will it seriously contemplate the next step of making an overseas investment. For this reason, we have valued and benefited from the cooperation, support and information flow from all of the trade agencies represented on the TPCC.
At the same time, we are keenly aware that OPIC's mission is in many ways distinct from that of the more traditional trade agencies. OPIC is an integral part of the foreign assistance program of the United States, born out of the Marshall Plan, and focused on the belief that concessional aid alone cannot bring about the economic development so sorely needed in much of the world.
Private investment has been viewed as a highly effective method of achieving the goal of teaching nations "how to fish" rather than giving them fish. And years of experience have amply demonstrated that U.S. overseas private investment continues to be a magnet for U.S. exports as overseas affiliates of U.S. companies source their goods and services from here. And so, OPIC has the enviable job of supporting investments that not only serve our nation's foreign/development assistance objectives, but also have beneficial impacts in the U.S. through the creation of export-related jobs.
Our focus is increasingly on those countries where the needs are greatest and on the U.S. small and medium businesses that otherwise would hesitate to expand overseas without OPIC financing or insurance. Fortuitously, these are the same markets where our nation's trade assistance programs as implemented by fellow members of the TPCC can also have significant impact. It is the developing country markets that will continue to grow the fastest and it is those same markets where our exports are in demand.
We have already seen the benefits of interagency cooperation in the recent White House visit of Indonesia President Megawati. During that visit President Bush announced a joint trade and finance initiative developed by OPIC, the Ex-Im Bank and TDA. This cooperative undertaking will provide up to $400 million in financing to promote trade and investment opportunities in Indonesia, with OPIC and Ex-Im Bank focusing on projects in the oil and gas sector. Financing will be subject to the normal terms and conditions established by each agency's programs. OPIC is pleased to join with our sister agencies to support the President's policy of assisting economic development in Indonesia, an important U.S. ally and a country with the world's second largest Muslim population, and I can report today that discussions are already underway with private sector companies that could fulfill this important commitment to Indonesia.
Another area of cooperation is promotion of business development in countries of specific U.S. interest. I am pleased to be a participant in the business development delegation being led by Secretary of Commerce Evans to Russia on October 14-16, 2001. The mission, undertaken at the direction of President Bush, will include senior executives from approximately 15 U.S. companies representing a variety of sizes and sectors. The mission will affirm U.S. Government support of Russia's economic reforms and assess ways to improve access by U.S. businesses to the Russian market.
OPIC continues to play a key role in the TPCC's interagency Advocacy Network, which provides systematic U.S. Government advocacy support to small, medium, and large U.S. exporters to help level the playing field against foreign competition and win foreign government contracts. Through the Commerce Department's Advocacy Center, OPIC has worked closely with advocacy counterparts from the trade agencies, providing financing and insurance support for U.S. exporters involved in various industry sectors in emerging markets and developing economies worldwide. The "team approach" employed by OPIC, the Departments of Commerce and State, and the U.S. Embassy in Bulgaria in providing continuous and aggressive advocacy support, including $200 million in political risk insurance, for a $450 million U.S. power plant project in Bulgaria epitomizes the importance of TPCC interagency cooperation.
At its core, OPIC remains committed to return to its overarching developmental mandate. OPIC's principal mission is "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, and countries in transition from nonmarket to market economies, thereby complementing the development assistance objectives of the United States."
Since 1971, OPIC has accomplished this mission by supporting more than 3,000 projects throughout the developing world. Cumulatively, these projects have supported host country jobs and have contributed to the host country tax base and infrastructure. As of March 31, 2001, OPIC is managing a portfolio of 316 active projects in locations that range from Algeria to Zimbabwe. The activities of these projects are diverse and include manufacturing plants, communications operations, gas pipelines, power plants, financial services institutions, mining operations, tourism/hotel projects, and agricultural operations.
Equally true is the proposition that U.S. small and medium businesses are increasingly important drivers for our economy and have the most to gain from increasing their share of the export market. All of this gives me great confidence that despite differences in our mandates, OPIC and the other members of the TPCC will continue to have great synergy in our work and in achieving results that are critical for long-term economic development abroad at the same time that they create jobs and exports here in the United States. We at OPIC look forward to the benchmarking exercise that the TPCC has launched and applaud the outreach to customers of our services. We are committed to serving them as effectively and efficiently as possible and tailoring our products and services to meet their changing needs. Indeed the work of the TPCC will complement quite well the work that OPIC itself has embarked upon in assessing its programs, refocusing our efforts toward the countries in greatest need and streamlining our operations.
OPIC's authorizing legislation directs the agency to pay special attention to the needs of American small businesses. However, OPIC has yet to fulfil its potential in this area. In the coming months, OPIC will reexamine its opportunities to assist small business. One particular avenue that we have already identified and are exploring is the extent to which OPIC can complement or even leverage the work of other agencies. For example, the U.S. Small Business Administration (SBA) is a great resource for U.S. small businesses that are seeking to establish themselves or expand in and from the United States, which may be significantly enhanced with OPIC support. We are engaging for OPIC to partner with the SBA in a mutually beneficial manner that would advance the achievement of both agencies' missions. OPIC is also working closely with the U.S. and Foreign Commercial Service at the Department of Commerce to provide small companies with the most up-to-date information on international markets and the appropriate financing tools they need.
Most importantly, such cooperation would greatly assist American small businesses seeking to establish a presence in developing regions. Small businesses often do not meet the profile that private sector financial institutions and insurers are looking for in their overseas clients. This is where the development goals of the United States government, the needs of small business, and OPIC's programs intersect. With OPIC's assistance, the proven dynamism of U.S. small businesses can be leveraged to produce viable projects in the developing world.
In addition to the TPCC review, OPIC's management and staff are committed to increasing responsiveness to stakeholders and streamlining business processes. By streamlining OPIC's application process and publicizing OPIC's political risk insurance and finance products, OPIC will continue to improve its efficiency and effectiveness.
Minimizing red tape and providing responsive service to all who have an interest in the agency's operations is one of the critical links in OPIC's efforts to leverage its funding into viable projects. Towards this end, OPIC will:
For those less familiar with OPIC's responsibilities of supporting development and stability in strategic regions around the world, let me describe our programs and their results.
Because of its core development and foreign policy mission, OPIC operates under the Foreign Assistance Act, under the direct oversight of the Senate Foreign Relations Committee, and the Subcommittee currently chaired by Chairman Sarbanes, and formerly Senator Hagel. Working together, they have given OPIC a strong vision for promoting international economic development which also provides significant benefits to the U.S. at no cost to the taxpayers.
OPIC provides financing and political risk insurance to mitigate the risks faced by U.S. investors in emerging markets and developing economies where private support is generally not available. Insurance is available for up to 20 years for new investments in new projects or expansions of existing projects. OPIC protects against the risks of inconvertibility, expropriation, and political violence.
OPIC provides financing to U.S. companies, or companies with significant U.S. management involvement, in the form of direct loans and loan guaranties with medium- to long-term repayment terms. OPIC also supports the creation and capitalization of long-term, private direct equity funds that invest in new, expanding, or privatizing companies in emerging and developing market economies.
All OPIC-supported projects must be financially sound, promise significant benefits to the social and economic development of the host country, and cause no harm to the U. S. economy. Projects must also avoid major or unreasonable environmental, health and safety impacts and comply with OPIC's statutory requirements with respect to internationally recognized worker rights.
I am pleased that OPIC projects are having a positive impact in developing countries. OPIC projects have helped developing countries to generate host-government revenues and create host-country jobs. At the same time, OPIC-supported investments are helping create American jobs and U.S. exports. Over the agency's 30-year history, OPIC has supported $138 billion worth of investments that will generate $64 billion in U.S. exports and support nearly 250,000 American jobs
In Fiscal Year 2000, OPIC assisted 40 projects in 27 countries or regions, involving a wide range of industries. These projects will have a significant developmental impact in the host country. Thirty-seven of the 40 OPIC-supported projects in Fiscal Year 2000 were located in the low- and middle-income developing countries. The projects are also expected to generate $2.3 billion in U.S. exports, support over 6,000 U.S. jobs and have a positive impact on the U.S. balance of payments.
Forty percent of all projects OPIC supported in Fiscal Year 2000 involved U.S. small businesses. Data on the specific U.S. companies that will provide goods and services to OPIC-assisted projects for the seven fiscal years 1994 through 2000 show the specific U.S. suppliers for $11.4 billion in expected procurement for OPIC-assisted projects. These U.S. companies are located in 46 states. It is estimated that approximately 62 percent of these identified suppliers to OPIC-backed projects are U.S. small businesses.
Finally, it is important to note that at the same time OPIC is reaching out to serve the needs of small business in challenging regions, OPIC remains financially strong. In FY 2000 OPIC generated net income of $185 million and received an unqualified audit opinion from the independent accounting firm of PricewaterhouseCoopers LLP. At the close of FY 2000, OPIC's combined finance and insurance portfolio maximum exposure was $16.8 billion while accumulated reserves reached a record $4 billion. This balance provides strong financial protection against future claims or defaults.
OPIC projects are having a broad impact across the globe. In South America, OPIC is helping build the foundation for economic growth in the region by supporting various infrastructure projects in the telecommunications, energy, and banking sectors. In Trinidad and Tobago, OPIC is providing financial support for the development of a seawater desalination plant that will help alleviate chronic drinking water shortages in the country.
In Africa, recent projects involve a wide variety of sectors, such as gas field development and production, a tourist hotel, a microlending facility for micro-enterprises, and a toothpaste manufacturing facility. In Equatorial Guinea, OPIC provided a $173 million guaranty for the construction, ownership and operation of a methanol plant. This is the largest single investment OPIC has ever supported in sub-Saharan Africa. The project will contribute simultaneously to private sector development in Equatorial Guinea and to the improvement of local air quality by processing gas that would otherwise be flared.
Elsewhere, OPIC recently approved a $2.5 million direct loan to support home improvements in Mexico - OPIC's largest project in Mexico since establishing a new small business initiative there. The OPIC direct loan, to Maryland-based CHF International (Cooperative Housing Foundation), will help establish a new on-lending facility to provide loans for home improvements in Mexico, including the provision of safe and adequate housing for workers along the U.S.-Mexico border. Proceeds of the loan will go to Mexican non-profit organizations, which in turn will lend money to individual Mexicans to finance home improvements. CHF will also offer educational programs for potential lenders and borrowers.
CHF, which celebrates its 50th anniversary next year, has since 1962 provided international shelter-related technical and capital assistance and training, and currently supports programs in Mexico, Gaza, Honduras, Jordan, Lebanon, Philippines, Romania and El Salvador. Adequate housing is the most basic unit of a country's infrastructure, and a necessary foundation for its economic development. OPIC is pleased to work with a respected organization such as CHF to enable Mexico to improve its housing stock, to the economic benefit of both our countries.
In the Philippines, OPIC has supported Counterpart International and its affiliate EnviroVentures for the first two projects to be financed by a $1 million initiative to assist environmentally friendly small- and medium-sized enterprises. OPIC released $200,000 in loans for construction of environmentally sustainable low-cost housing as well as for a project expanding the marketing program for a seaweed-based fertilizer product. For the housing project, construction materials that require less energy to produce than do standard materials will be purchased from small local producers, thereby benefiting both the environment and the small business community. The seaweed-based fertilizer project, will benefit the environment in two ways: first, the fertilizer product is manufactured by recycling waste from local seaweed processing plants. Second, increasing the use of organic versus chemical fertilizers is environmentally beneficial, particularly in areas of the Philippines where overuse of chemical fertilizers is a concern.
As part of its continuing effort to promote private investment in the Newly Independent States, OPIC supported a project to restore an historic hotel in Armenia, one of the largest private foreign direct investments of its kind in Armenia. OPIC is providing an $18 million loan to a small business group comprised largely of Armenian-Americans to privatize the Hotel Armenia -- the agency's first finance deal in the Caucasus nation. Opening of the Hotel Armenia project is expected to spur economic development in Armenia and to foster tourism. The project is expected to generate $25 million in U.S. exports during the first five years of operation. In addition, approximately $14 million will be spent in Armenia on renovating the hotel, plus annual operating procurement of $6 million from the host country. The project will also bring much-needed private sector career training in the hospitality sector to Armenia, as Marriott International, Inc. will manage the hotel and train the staff in the hospitality practices and procedures developed for its hotels world-wide.
Looking ahead, in cooperation with our TPCC colleagues, OPIC's activities will focus more closely on development and companies and countries that have difficulty accessing private financing or insurance. OPIC will also increase its efforts to ensure that its programs complement the private market rather than compete with it.
Working together we can develop OPIC as a foreign policy program focused on development that is making an important difference to people in developing countries and in America, as well.
I will be pleased to respond to your questions.
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