Are you an American company interested in doing business in emerging and developing markets, but concerned about the risk they present?
On October 15, 2020, the US International Development Finance Corporation (DFC), a new federal agency formed from the consolidation of the Overseas Private Investment Corporation (OPIC) with inter alia the Development Credit Authority of the US Agency for International Development as a financing counterweight to the People’s Republic of China in developing nations, issued its first-ever strategy – The Roadmap for Impact: DFC’s Inaugural Development Strategy (the “Strategy”). With the Strategy, the DFC intends to catalyze the investment of $75 billion in the economies of developing countries over the next five years, principally by investing more than $25 billion itself and mobilizing an additional $50 billion from the private sector.
The Strategy commits the DFC to undertaking 60 percent of its projects in low income and lower-middle income countries, and fragile states by 2025, focusing on six sectors:
- Financial inclusion and strengthening financial systems: Increase access to finance for underserved populations including women, small businesses, and rural communities to spur entrepreneurship and prosperity (via DFC’s 2X Women’s Initiative, DFC’s Portfolio for Impact and Innovation Initiative).
- Healthcare: Strengthen healthcare supply chains, access to healthcare services, and the response to COVID-19 (via the Global Health Security Agenda, PEPFAR, the President’s Malaria Initiative, etc.).
- Technology and Infrastructure: Elevate innovation and technology across 50% of DFC’s projects to improve information and communications technology, spur trade and economic growth, and enhance access to basic services (via Connect Africa, Prosper Africa, the Indo-Pacific Strategy, Three Seas Initiative, and Mekong Fund).
- Energy: Expand access to competitive, sustainable, and reliable electricity and promote energy security by diversifying power generation and increasing electricity access (via Power Africa, Three Seas Initiative, America Crece, Asia Edge, and the European Energy Security & Diversification Act).
- Agriculture and Food Security: Promote nutrition, food security and robust agriculture value chains, especially through innovations in agro-processing, storage, and industrialization to support smallholder farmers (via Feed the Future, Food for Progress, Colombia Eradicate Coca, etc.).
- Water, sanitation and hygiene: Invest in projects that expand access to clean drinking water and improve sanitation services to increase access to potable water (via Ocean Plastics & Waste Management, U.S. Global Water Strategy, etc.).
Ultimately, DFC centers the Strategy on its “Triple Aim approach,” which focuses on “achieving global development impact, advancing US foreign policy, and generating returns for American taxpayers.” The three overarching strategic objectives for the DFC include: (1) promoting inclusive economic growth and stability with a focus on lower-income countries, countries recovering from conflict or terrorist violence, and those struggling to stem migration flows; (2) countering predatory state-directed investment and other malign influences, preserving partner country sovereignty, and fostering self-reliance; and (3) supporting countries undergoing market transformation and democratic reform.
The DFC seeks to partner with US companies, while also addressing manufacturing and global supply chain challenges that became apparent during the COVID-19 pandemic. According to the Strategy, the DFC would “support the diversification of critical supply chains by investing in sectors to counter shortages of essential goods, disruptions in sourcing raw materials, and the inability of industries to meet consumer demands.” Moreover, DFC will proactively support countries’ integration in global and regional supply chains, such as “financing new transportation, logistics and infrastructure projects, to include warehousing and cold chains, needed to relocate and reorient global supply chains.”
For Africa, the Strategy could potentially support regional supply chain integration challenges associated with implementation of the African Continental Free Trade Agreement (AfCFTA). The DFC will also “consider how it might seek to leverage and reinforce US free trade agreements (FTAs) as pathways for catalyzing investment in specific sectors.” Indeed, the second round of talks between the United States and Kenya over an FTA – America’s first in sub-Saharan Africa – is set to occur later this month. The Strategy is not just an opportunity for developing countries in Africa, but also explores opportunities for developing countries in the Indo-Pacific region, Latin America and the Caribbean, and in Europe.
The Strategy further acknowledges priorities from the enacted Global Fragility Act of 2019, by seeking to advance US priorities and enhance collaboration with allies on stabilization, atrocity early warning and response – all of which are required by Congress to be included in the first-ever Global Fragility Strategy, expected to be released by the end of this month. It will outline a whole-of-government approach that streamlines how the State Department, US Agency for International Development, Department of Defense and other Agencies (such as the DFC and Treasury) coordinate and engage in prioritized fragile countries/regions toward stabilizing existing conflicts and preventing future conflicts to avoid years-long reconstruction efforts.
Given its broad bipartisan support in Washington, the DFC will move forward with implementing the Strategy over the next five years, regardless of who sits in The White House in January 2021. If you are an American company interested in doing business in emerging and developing markets, but concerned about the risk they present, you might consider partnering with the DFC (or the US Export-Import Bank) as a way to mitigate that risk. We can help.