The proposed Electrify Africa Act of 2014 is intended to “encourage access to electricity in sub-Saharan Africa.” That’s a worthy goal. However, the bill includes a reauthorization of the Overseas Private Investment Corporation (OPIC) through 2017, an agency that, like the Export–Import Bank, should not receive taxpayer backing.
OPIC provides political risk insurance, loan guarantees, and direct loans to U.S. companies that invest abroad. It is an example of “socializing the risk and privatizing the profit.” Businesses get to keep the profits if their investments pay off, but if an investment goes bad, taxpayers pick up the tab.
Admittedly, OPIC has not suffered grave losses, but the same could have been said of Fannie May and Freddie Mac prior to the mortgage crisis. OPIC is also less than transparent, a problem that the act seeks to address through the establishment of a dedicated inspector general, among other reforms. But objections to OPIC go beyond its managerial weaknesses.
As Heritage Foundation analyst Patrick Knudsen advised in 2013:
Although OPIC’s profits allow it to operate at no net cost to U.S. taxpayers, it receives operating subsidies from Congress, and its government backing exposes taxpayers to financial risks. The U.S. should stop subsidies to OPIC and let the corporation be self-financing.
Congress should consider OPIC independently based on its own merits, not as part of the Electrify Africa Act. In 1996, Heritage analyst Brett Schaefer concluded:
Congress should not expand OPIC’s funding and authority. OPIC is another form of corporate welfare and accomplishes nothing that cannot be performed better in the private sector, without risk to U.S. taxpayers.
Nobel laureate Milton Friedman was just as direct:
I cannot see any redeeming aspect in the existence of OPIC. It is special interest legislation of the worst kind, legislation that makes the problem it is intended to deal with worse rather than better.… OPIC has no business existing.
This conclusion remains true today.
At its core, the Electrify Africa Act is a foreign assistance bill that seeks to promote access to electricity in sub-Saharan Africa. It requires the Obama Administration to develop a comprehensive strategy to increase access to electricity in sub-Saharan Africa and report in great detail to Congress on the strategy and progress toward that goal. It also directs USAID and the Trade and Development Agency to emphasize electrification in the region. It also notes the positive impact of Millennium Challenge Corporation projects in the energy sector and directs U.S. representatives to promote these projects in international bodies. These efforts should be sufficient to meet the objectives of the act.
Although U.S. investment can assist development efforts, OPIC is not a foreign assistance agency and should not be made into one. OPIC was established to provide U.S. government loans, investment guarantees, and investment insurance in risky environments where private-sector alternatives are not available in order to facilitate U.S. private-sector investment and encourage private-sector-led growth. In fact, OPIC was envisioned as a private-sector-oriented alternative to foreign assistance, which was perceived to be less effective than private investment in promoting development.
As noted, OPIC shifts risk to U.S. taxpayers while denying them a commensurate share of the returns. Although doubtful, this practice may have been justified when OPIC was created in 1969. But the original vision for OPIC was based on encouraging private-sector investment in developing countries, and it makes little sense to maintain government-subsidized loans, guarantees, and insurance when ample private-sector alternatives exist in today’s era of global markets and foreign direct investment in developing countries is surging. Congress should not reauthorize OPIC as part of the Electrify Africa Act.