WASHINGTON-The ransacking of a U.S.-owned mobile-phone company in Cote d’Ivoire, the recent jailing of a billionaire oil tycoon in Russia and geopolitical instability associated with global terrorism represent the kind of new challenges in high-growth emerging markets that could make wireless firms increasingly dependent on political risk insurance-particularly the services of a controversial government agency.
The Overseas Private Investment Corp., a government body that provides political risk insurance and loans to U.S. firms doing business abroad, has been a magnet for controversy over the past decade. Critics have decried OPIC as a font of corporate welfare and pointed to its support of projects in which environmental damage, unjust labor practices, human-rights violations and corruption have been alleged.
In the past few years, OPIC has insured more than a dozen wireless telecom projects in Russia, Brazil, Columbia, Haiti and Jamaica. With growth leveling off in the United States and competition as stiff as ever, wireless firms are banking on new business in emerging markets with inadequate telecom infrastructure that have embraced wireless technology as a cost-effective solution.
The reality of wireless investment in the era of globalization is that the best opportunities are typically in the least stable settings. But emerging markets cannot be ignored. They are too important to ignore. Buying political risk insurance is one way wireless firms and investors can hedge their bets and protect their assets.
When Western Wireless Corp. and other investors went into Cote d’Ivoire to launch a third mobile-phone system several years ago, officials did not obtain political risk insurance because the country was among the most peaceful and orderly in Africa. But that all changed after a military coup in December 1999 and later a civil war. Now, after being forced at gunpoint to shut down operations last month, Western Wireless and other U.S. investors are hoping to recoup from the Cote d’Ivoire government some of the $40 million investment in Cora de Comstar.
OPIC has strong support in the business community. While companies today have private-sector options for political risk insurance and funding, the terms private insurers offer are not as attractive as those made available by OPIC.
OPIC said overseas projects support American jobs and exports, accounting for more than 280,000 new U.S. jobs and $65 billion in exports since its inception in 1971. Moreover, the agency points out that because it charges market-based fees for its products, it operates on a self-sustaining basis at no net cost to taxpayers.
But that has not blunted criticism, even calls for Congress to eliminate OPIC.
The latest attack comes from a libertarian think tank here, right at the time of a critical congressional review of the agency.
“OPIC’s record since its last reauthorization in 1999 provides little evidence that it promotes development abroad or helps the U.S. economy,” said Ian Vasquez and John Welborn of the Cato Institute in a recent paper. “OPIC’s activities are more likely to discourage than to advance market reforms, and the agency largesse is concentrated in a handful of countries.”
The authors said nearly all of the billions of dollars in OPIC financing and insurance goes to large corporations, including Citibank, Enron Corp., Caterpillar Corp., and Bechtel Corp. Top beneficiaries include Brazil, Argentina, Turkey, Venezuela and Russia. Between 1991 and 2002, nearly 15 percent of OPIC support went to wireless and other telecom projects.
“OPIC reduces the productivity of the U.S. economy by shifting resources to politically favored activities,” said Vasquez and Welborn. “Congress should retire, not reauthorize, this blatant example of corporate welfare.”
But Congress does not appear to be headed in that direction. Not by a long shot.
The House last week was poised to reauthorize OPIC, making changes in response to criticisms in a way intended to strengthen the agency.
In an Institute for International Economics study released in May, Georgetown University’s Theodore H. Moran advocated various reforms but concluded OPIC should remain intact because the private sector cannot replicate its role.
“Private political risk insurers offer the promise of compensation after harmful acts take place. So does OPIC. But OPIC has a unique capability to prevent the host country that leads to a demand for compensation because its insurance coverage and financial guarantees are backed by investment agreements with countries where it operates and are reinforced by the clout of the U.S. government. Therefore,” said Moran, “OPIC can discourage adverse conduct from taking place in the first place or help resolve disputes before they result in a claim.”
Among Moran’s recommendations:
c Support export-oriented manufacturing projects that are closely integrated into the parent corporation’s sourcing network, precisely the kinds of projects that OPIC denies under current internal guidelines and externally legislated restrictions;
c Adopt a new `net U.S. effects’ measurement standard to identify foreign investment projects that leave U.S. workers and communities better off if the projects come to fruition than could be expected if the outward investment did not take place;
c Provide greater transparency about workers’ rights and environmental practices of the investors the corporation supports;
c Improve OPIC’s performance by allowing participation in its projects by foreign-owned corporations with a substantial base in the United States.
Lawrence Spinelli, an OPIC spokesman, said that while some criticisms might have been true 10 years ago, they are no longer valid because of changes-including greater efforts to help small businesses-by the agency’s current leadership and the previous regime.
Of the think tank’s harsh indictment of OPIC, Spinelli replied, “This is the same broken record that’s been coming out of Cato for a long time.”
“They really need to do their homework,” he said.
