The US government is gridlocked. The media frequently reports on partisan fights between politicians over just about everything. At the same time, the Trump administration has alienated America’s staunchest allies. It has even questioned the merit of aid-giving institutions like the United Nations.
In the face of these challenges, it is striking that congressional Republicans and Democrats and even Trump himself supported the Better Utilization of Investment Leading to Development (BUILD) Act, which was signed into law on October 5th. The 93 votes in favor of the bill in the Senate show just how much everyone agreed that US support to private sector development investment is important and that it needed an overhaul.
Since 1969, the Overseas Private Investment Corporation, or OPIC, had been the government agency that helped US companies invest in development projects overseas. Poorer countries don’t have the funds to fill all of their citizens’ needs, so private investors can step in to fill the gaps. But setting up a business or implementing a project in areas with low- or medium-development can be risky due to political, social, and economic instability. That’s where OPIC stepped in. They provided loans and risk insurance so that investors could put money in places that needed it most.
This support has had real benefits for people around the globe. In the Dominican Republic, for example, OPIC provided loans in order to fund renewable energy in the form of a wind farm in 2011. Not only will the facility cut CO2 emissions, but it will also provide much-needed electricity to the region. Because of OPIC’s social and environmental standards, the company building the plant also started educational initiatives around clean energy and ecosystem protection.
Despite many such successes, in recent years OPIC has struggled to compete against other sources of funding, particularly loans from China, because of restrictions on its lending abilities. In his testimony to the Senate Committee on Foreign Relations in support of the BUILD Act, Daniel F. Runde from the Center for Strategic and International Studies cut to the chase, “Frankly, China is eating our lunch around the world, especially in Southeast Asia, Africa, and Latin America.”
That’s where the BUILD Act comes in. It gives US policymakers the opportunity to shape overseas investments for generations to come by ensuring that private American companies remain competitive in the developing world. For millions of people around the world, this act could change the way that they produce energy, build infrastructure, and set up health care systems.
The BUILD Act replaces the outdated and constrained OPIC with the new US International Development Finance Corporation (USIDFC). Modern rules will allow the USIDFC to provide technical assistance like reports and studies and to purchase stock in companies. It will also double OPIC’s budget and streamline operations between OPIC and the US government’s other development agency, USAID. Overall, proponents say that the USIDFC will allow for more effective implementation of foreign investment for development solutions around the world with few costs to taxpayers.
Because of OPIC’s old fashioned rules and structure, China has been dominating foreign investment for development projects because they can give larger amounts of money, faster, to more companies that are operating in more countries. In September, China announced that it would be investing $60 billion in financial support to Africa alone. But these enormous investments have attracted attention for putting countries into unmanageable amounts of debt and for their poor environmental and labor standards. Sri Lanka’s debt to China grew so much that the government was forced to hand over a whole port to balance its books.
The BUILD Act is a step in the right direction toward furthering US national interests around the world and making US companies more competitive in the international sphere. But we can’t just congratulate ourselves for this one reach across the aisle and move on. As USIDFC starts its work, policymakers must insure that it does so with high social and environmental standards, and dedicated administrators need to be supported so that the agency can be run with integrity and high standards no matter what’s happening on Capitol Hill or in the White House.
Companies partnering with OPIC had obligations to carry out due diligence procedures in regards to environmental and social sustainability. Oxfam, an international organization working to end poverty, applauded the new law for incorporating stronger environmental and social standards in USIDFC’s operating rules, including the creation of an accountability mechanism to hear complaints from affected communities and language on workers’ rights.
Just including these measures have been shown time and time again to not be enough to prevent social and environmental harm.
The US must make sure that it scrutinizes its own practices as much as it does China’s. “We cannot change China’s policy,” Runde says, “but we can have a better offer than China.” To make the best offer on the market, US development funding must also include the assurance that our investments will not hurt those we seek to help. USIDFC allows us to make these better deals by increasing the amount of funding it has to offer and eliminating stringent rules that restricted the ways in which OPIC could provide assistance—and providing support for sustainable practices.
It’s good that USIDFC will have high environmental and social standards, as they will help ensure that communities’ rights are respected by development projects. They are not enough, however, to guarantee that investments cause minimal harm to communities and the environment. The policies must be implemented correctly, consistently, and fairly in order for the US to prove that it actually cares about helping those in underserved areas.
The BUILD Act gives policymakers a once-in-a-lifetime opportunity to revise development finance in a way that helps people around the world get the resources they need with high environmental and social sustainability. Policymakers and citizens alike must remain vigilant to make sure that these aspirations do not become marred in bureaucratic processes within the USIDFC. America’s reputation and credibility are at stake.