WASHINGTON – This morning, U.S. Senator Chris Coons (D-Del.), a member of the Senate’s Foreign Relations and Appropriations Committees, delivered the keynote speech at the fourth annual Global Development Forum hosted by the Project on U.S. Leadership in Development at the Center for Strategic & International Studies (CSIS). In his remarks, Senator Coons discussed the Better Utilization of Investments Leading to Development (BUILD) Act of 2018, bipartisan legislation that Senator Coons introduced on February 27 with Senator Bob Corker (R-Tenn.). The bill would create a new U.S. International Development Finance Corporation, modernizing the U.S. Government’s development finance tools to provide for increased investments in the developing world.

Senator Coons remarks, as prepared, are below:

Thank you, Dan, for inviting me to participate in CSIS’ Global Development Forum and discuss the importance of development finance reform.

On February 27, I introduced the Better Utilization of Investments Leading to Development, or BUILD, Act of 2018 with Republican Senator Bob Corker, Chairman of the Senate Foreign Relations Committee.  Representatives Ted Yoho and Adam Smith also introduced a companion bill on the House side. 

In the next ten minutes, I would like to explain to you why I introduced the bill, and why I hope to see the bill become law before the end of the year.

As I see it, this bill, which modernizes the way in which the U.S. government conducts development finance, solves at least three problems.

First, the bill provides the U.S. government with a 21st century development finance institution with the ability to mobilize private capital at greater scale than the limited capacity we have today.

In September 2015, the countries of the world adopted the Sustainable Development Goals, or SDGs, a set of 17 specific objectives to end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable international development agenda.

I believe the United States can and should play a leadership role in marshaling the world’s efforts towards achieving these goals before 2030.

But there is no way that traditional aid, by which I mean large public-sector grants, or official development assistance, will be sufficient or the most effective way to harness resources necessary to bring the world’s poorest out of poverty.

Official development assistance is now dwarfed by private capital flows.  According to the Organization for Cooperation and Economic Development, official development assistance as a percentage of gross national income worldwide has slightly decreased from 0.5 percent in 1960 to around 0.3 percent in 2017.  Meanwhile, research shows that external financial flows to sub-Saharan Africa increased from $20 billion in 1990 to over $120 billion in 2012, primarily because of increased private capital flows and remittances. 

It, therefore, stands to reason that the United States and other donor countries committed to alleviating global poverty should find the most effective ways to mobilize private capital flows for the purpose of development.

The Overseas Private Investment Corporation, or OPIC, is a small but effective agency that helps promote investments in emerging markets.  I first became familiar with its work in 1985 and learned in detail about its operations during my first four years in the Senate when I chaired the Foreign Relations Subcommittee on Africa.

Congress has failed to authorize the agency since 2003.  So, each year, an agency designed to make long-term investments in the developing world finds itself forced to rely on an annual appropriation or a 30-day continuing resolution to continue its operations.  It goes without saying, but the congressional failure to authorize OPIC beyond short term fits and starts associated with government funding battles is not a recipe for success. 

The BUILD Act creates and authorizes a new U.S. International Development Finance Corporation for 20 years, and it raises the maximum contingent liability to $60 billion.  OPIC’s current portfolio limit is $29 billion, which hasn’t changed since 1998.  OPIC currently has $23.2 billion committed – leaving it with less than $6 billion of capital left to lend.

Doubling the portfolio, the United States employs for development finance is significant, especially when you consider the downward pressure on traditional foreign assistance funding from the State Department and USAID.  So, the bill expands the relative scale of private capital versus government grants currently available.

Second, the bill will allow us to employ a new updated suite of tools to partner with the private sector – a level of sophistication far greater than OPIC’s current instruments. 

OPIC is constrained because it cannot invest in equity and it does not allow non-U.S. persons or entities to invest in its products.  OPIC cannot make loans or guarantees in local currency.

The project you direct here at CSIS, Dan – the Project on Prosperity and Development – released a report in 2016 that showed how OPIC compares to fifteen European development finance institutions.  There’s one striking difference between OPIC and almost all of the European DFIs – the authority to participate in equity investments.  Our bill would fix that problem. 

Investing as a limited equity partner is important for two reasons.  First, our European partners including the United Kingdom’s Commonwealth Development Corporation and others can invest in equity, and now we will be able to coordinate with them for greater scale and greater impact.  Second, equity investments have the potential to attract more capital because investors will see that governments have a seat at the decision-making table where they can drive the development outcomes and positive returns we all want to see.

The President and CEO of OPIC, Ray Washburne, did a great job last week in a House Foreign Affairs Committee hearing of explaining OPIC’s limitations and why equity authority will allow our new development finance institution to collaborate with other countries on larger investments. 

When you consider that the United States has a business community with significant capital to invest and a world-leading understanding of finance, it doesn’t make sense for us to be falling behind our allies on the use of modern development finance tools.  With a larger portfolio, OPIC can take more risks and expand its investments in countries where it can achieve broad-based economic growth. 

And because this new development finance institution will be closely linked to USAID, Foreign Service Officers serving in developing countries will have access to the new development finance institution’s range of tools to help address constraints to economic growth.

Third, this bill would give the United States the ability to compete with China for influence in Latin America, Africa, South Asia, and Southeast Asia.  China and other countries are deploying capital at levels previously unseen.

Through its “One Belt, One Road” framework, China is investing in energy, infrastructure, telecommunications, and extractive industries throughout the world.  I just led a bipartisan delegation of five senators to four countries in Africa, and Chinese influence on the continent is palpable – from closer ties between African and Chinese leaders to the visible presence of Chinese workers, services, and goods.

China is Africa’s largest economic partner, surpassing the United States as Africa’s largest trading partner in 2009.  According to a report released by McKinsey & Company last year, foreign direct investment from China in Africa grew at an annual growth rate of 40 percent over the last decade.

Between 2000 and 2014, Chinese banks, contractors, and the government loaned more than $86 billion to Africa, according to research from the John Hopkins School of Advanced International Studies.  Mr. Washburne pointed out last week that China is also expanding its influence in Latin America, committing billions to renovate Port-au-Prince, Haiti.  I also saw their influence last summer when I traveled to Vietnam with Senator McCain.

We will not follow the Chinese model, but the United States needs to show up with investment proposals in countries with growing populations and fragile institutions.

In addition to the bipartisan support for the BUILD Act in Congress, I am encouraged to see strong support from the Trump administration.  The President’s National Security Strategy said: “The United States will modernize its development finance tools so that U.S. companies have incentives to capitalize on opportunities in developing countries.  With these changes, the United States will not be left behind as other states use investments and project finance to extend their influence.” 

Additionally, speaking in Da Nang, Vietnam in November 2017, President Trump said: “We are committed to reforming our development finance institutions so that they better incentivize private sector investment.” 

President Trump’s Fiscal Year 2019 budget request also proposed a reformed and consolidated U.S. Development Finance Institution, and last week the Administration issued a statement expressing strong support for the bill.  I am grateful for my colleagues on both sides of the aisle for partnering with me on this effort, including Senator Corker, Representatives Yoho and Smith, and our other cosponsors for the BUILD Act.  And despite the limited number of days left on this year’s legislative calendar, I am optimistic that we can pass this bill into law.  

Creating a new U.S. International Development Finance Corporation with clear linkages to USAID will help us be strategic about our investments abroad and advance U.S. interests by complementing our development assistance.

Thank you again for having me, and I look forward to our discussion. 

 

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