Robert Mosbacher, Jr. CG/LA

Fourth Annual Latin American Leadership Forum
(program information)

"Supporting the Private Sector in Achieving High Infrastructure Growth"

A presentation by

Robert Mosbacher, Jr.
President and CEO
Overseas Private Investment Corporation

March 28, 2006
Hilton Hotel, New Orleans

I appreciate the invitation of Norman Anderson and CG/LA Infrastructure to join you here today at the Latin American Leadership Forum.

I also wish to recognize Linda Conlin, board member of OPIC’s sister agency, the Export-Import Bank of the United States, as well as officials from the governments of Mexico and Spain, the Organization of American States and MIGA, and not least the many leaders of America’s and Latin America’s private sector in attendance today.

It is a pleasure to be in the great city of New Orleans. And what a testament to the courage, spirit and resiliency of the residents of New Orleans that we can have this very important conference here today.

Latin America & OPIC

In emerging markets throughout the world, American companies are transforming the quality, sustainability, and reach of infrastructure – in turn enabling the economies of those regions to develop at an ever-faster pace.

American transportation and distribution companies, construction businesses, and engineering and law firms, have poured hundreds of millions of dollars into infrastructure projects in Latin America and other emerging markets to great effect, for both host country populations and their own businesses.

I believe that this is a floor, not a ceiling. Our record could multiply significantly once American companies identify the opportunities that await them in Latin America and adjust their perception of the risk of doing business in the region. That is where OPIC, my organization, can help.

Founded 35 years ago, OPIC's mission is to mobilize U.S. private sector capital and skills for the social and economic development of less-developed countries. Over its history, OPIC has achieved impressive series of results, supporting $164 billion worth of investments that have helped developing countries to generate more than 732,000 host country jobs and $13 billion in host government revenues.

And OPIC programs are a win-win for the American taxpayer. Not only does OPIC operate an no net cost to taxpayers (we actually return money to the Treasury annually), but over the last 35 years. OPIC projects have generated $69 billion in U.S. exports and supported more than 264,000 U.S. jobs.

In a word, OPIC is about risk, or perhaps more specifically, risk mitigation. To compensate for the uncertainties of a given market, or to provide larger scale and longer term financing, OPIC offers three basic products: political risk insurance, loan guarantees, and private equity funds.

The political risk insurance covers expropriation, currency inconvertibility, and political violence. The loan guarantees are provided through U.S. financial institutions unless they are very small, in which case OPIC can make direct loans. The private equity funds are created to stimulate investment in SME’s in a targeted country or region and OPIC puts in between a third and a half of the fund in the form of debt. The fund manager, chosen through a competitive process, is responsible for raising the rest.

As a development agency of the U.S. government, OPIC programs seek to complement the private sector, not supplant it or compete with it. We seek to “add value” or, in government-speak, to provide “additionality” where, in a given project, but for OPIC support, the project would not be able to go forward. In so doing, OPIC helps to mobilize and lead U.S. capital and skills into the very markets where lack of economic opportunity is the source of stagnation and instability.

OPIC has a long and successful history of supporting infrastructure projects in Latin America. Over the agency’s 35-year history, OPIC has provided more than $23.3 billion in financing and political risk insurance to 1156 projects in Latin America. Of that total, nearly $5 billion went to power projects, $3 billion to oil and gas projects, $544 million to construction projects, and $423 million to transportation-related projects. Those projects have in turn created tens of thousands of local jobs. Currently, OPIC’s portfolio in Latin America includes 144 projects in a broad range of sectors, and $3.9 billion in commitments.

Through our successful experience, OPIC has drawn several valuable lessons, a few of which I would like to share with you today.

Public Private Partnerships

First, let me mention the importance of public-private partnerships in larger infrastructure projects. As a structure to promote economic development, few could argue with the importance of partnerships in building out infrastructure and assisting with the difficult task of privatization. For example, look at the issue of airports.

That potential is indeed enormous: the International Airport Council expects that Latin America will see 325 million travelers annually by 2010 and that $75 billion will be spent on airport infrastructure to handle the increased traffic. And working with the private sector, OPIC is part of meeting this need.

For instance, in August 2005, OPIC finalized an agreement to provide $200 million in financing for the construction of a new international airport in Ecuador -- approximately 15 miles outside Quito -- enabling the country to accommodate greater commercial air traffic and improve safety. The airport has been a high priority for the Ecuadorian government.

This follows $106 million in OPIC support for the privatization and rehabilitation of Jorge Chavez International Airport in Lima, Peru. The loan was intended to assist in the improvement of services at the airport and further the privatization.

Privatization of Latin America’s airports is a process barely a half-decade old, but one that bears enough trademarks to offer some guidance for companies taking part. The benefits will go to those countries that have already laid solid foundations in preparation for the forecasted passenger growth.

The best examples of privatization demonstrate a coherent strategy, limited political interference and substantial transparency, as well as a sophisticated understanding of airport revenue performance and pricing.

OPIC provides a number of options to support this type of infrastructure investment. OPIC’s project financing allows for flexible repayment structures and long-term tenors that enable investments to become viable from an equity standpoint. OPIC also offers tailored protection to insure capital markets transactions, including private placements, Rule 144A bond issuances, and new bond financing of existing ventures – the result of which is to allow projects better access to US capital markets.

It is important to note that these public-private partnerships extend to other important, developmental ventures in a variety of sectors.

Inter-Agency Cooperation

A second lesson I would mention, which is new if not novel, is the importance of better cooperation and coordination among U.S. government agencies that support investment and trade. As I’ve said, OPIC programs are open in virtually every country in Latin America to support investment. My colleague, Linda Conlin, will speak to the important role that the Export Import Bank of the U.S. plays in these very same countries, financing U.S. exports. Our friends in the Trade and Development Agency are open in these countries to conduct feasibility studies.

The newest U.S. government agency, the Millennium Challenge Corporation (MCC), has selected a number of Latin American countries that are moving in the direction of free markets and rule of law as eligible for MCC grants that will target wide sectors of local economies. And of course, the U.S. Agency for International Development (USAID) maintains a presence in more than a baker’s dozen of countries in the region.

This is all complemented by United States Trade Representative’s office, which negotiates Free Trade Agreements that reduce crippling tariffs, which in turn, increase trade.

Taken individually, each of these programs has much to contribute to the development of successful local institutions, as well as to infrastructure and economic growth. But taken together, the value added, the leverage that these programs provide, both to the host country as well as the businesses that avail themselves of the needed support, creates a much stronger and sustained impact. I have committed myself and my agency to this type of coordination and hope we will have more to show for our combined efforts in the near future.

Growing Role of U.S. Small Businesses in Infrastructure

A third area is small business. Counter-intuitive as it may seem, U.S. small businesses are playing an increasingly instrumental role in helping Latin American countries develop their infrastructure. In particular, they have very astutely identified for themselves discrete niche roles that typically support the delivery of infrastructure services, sometimes on a temporary basis until larger infrastructure networks are more fully implemented.

January 2006: a U.S. small business is using a $5.4 million OPIC loan to expand its natural gas distribution project in Brazil, helping the nation meet a growing demand for clean-burning natural gas. The project is expected to drastically increase the feasibility of using clean-burning compressed natural gas in rural areas that are not currently served by natural gas pipelines, as well as its use in natural gas-powered vehicles.

May 2005: a U.S. small business is using a $3.3 million OPIC loan to construct a wastewater treatment facility in a city in northern Mexico, providing important support to its agricultural sector and relief from a 12-year drought. Completion of the plant will enable the agricultural sector in the city of Cuauhtemoc to eliminate the raw sewage currently used in irrigation and reduce its reliance on groundwater resources, providing important relief to a region that has suffered a serious drought. The facility will make Cuauhtemoc one of the first medium-sized cities in Mexico to comply with the Mexican government’s mandate to treat municipal wastewater by December 2007.

A final area of potential investment in which OPIC has a keen interest and in which we have established a high priority is housing. At OPIC, we all subscribe to the Peruvian Economist Hernando De Soto’s view that housing is not only a basic unit of shelter, but it is also a basic unit of collateral. If an individual has title to their home, they can use it to borrow against to start or expand a business. Because OPIC can make 15-20-25 year loans, we can help support creation of a primary mortgage market for low and moderate income people. That is precisely what we have done in a few pilot projects in Africa and Central America, and we plan to do much more of that.

With the creation of a primary mortgage market comes housing contruction and with that, the necessary infrastructure….streets, sewer, electricity, and water. I would encourage you to identify opportunities to be part of housing developments in which the infrastructure is an essential part of the development. Given the fact that OPIC is a development agency, there is absolutely nothing that is as developmentally beneficial as supporting low and moderate income home ownership.

In the 25 years that I ran an energy business in Houston, Texas, I chased a number of deals throughout Latin American. In that 25 years, I have seen enormous progress towards more open markets, more stable economies, and more transparent tenders. With the advent of CAFTA, as well as other economic and trade milestones, I think most of Latin America is poised for a new period of prosperity.

I look forward to working more closely with American companies and their Latin American counterparts on joint ventures that will further develop the continent’s infrastructure. Given the resources, talent and commitment assembled at this leadership forum, I am confident we will succeed.

Email this page to a friend