November 5, 2018
The Future of Development Finance
By Aubrey Hruby
Growing anxiety about China’s dominance of emerging markets spurred a rare bipartisan effort to pass the Better Utilization of Investments Leading to Development (BUILD) Act of 2018. The BUILD Act delivers a needed overhaul of US development finance capabilities and commercial diplomacy by subsuming the Overseas Private Investment Corporation (OPIC) and other development finance agencies into a single, streamlined entity: The United States International Development Finance Corporation (USDFC). The USDFC will provide policymakers with new tools for supporting US commercial diplomacy and promoting US corporate success in fast-growing foreign markets, including equity and grant making capabilities.
The BUILD Act has big implications for African markets, in which demographic growth has fueled an employment crisis and funding for entrepreneurial ventures remains painfully limited. A new issue brief by Africa Center Senior Fellow Aubrey Hruby, “The Future of Development Finance,” suggests that the new USDFC can catalyze job creation and conflict-prevention efforts while countering China’s rise – but only if policymakers create an agency prepared for future market realities. The USDFC, she writes, has to be able to tap into opportunities in the informal marketplace, despite the inherent risks and transaction costs; fast-track the development of business ecosystems and trust; and make the fundraising process more efficient for private equity firms. Hruby also recommends that the new USDFC should prioritize investments in areas of US competitiveness, such as finance, management services, and entertainment, rather than in Chinese-dominated sectors such as infrastructure.
With over 80 percent of future growth emanating out of emerging markets, the BUILD Act is poised to offer US companies a competitive boost that they desperately need. Hruby’s brief offers the policy makers tasked with creating the USDFC with a practical outline for creating a development finance institution capable of capturing the accelerating returns of the African marketplace.
Read the Publication (PDF)