The rising tide lifting all boats is more than capital

This July, the eyes of the world turned to the global Financing for Development conference in Addis Ababa and President Obama’s visit to Nairobi for the Global Entrepreneurship Summit. Much of the attention in the development conversation focused on the high volume of aid and private capital flows.

Those figures are, in fact, quite impressive.

The U.S., for example, committed $33 billion in official development assistance to developing nations in the last year alone.

Foreign direct investment into developing nations, including investment that was helped along by institutions such as the Overseas Private Investment Corporation and its peer development finance institutions, set a record of $700 billion last year.

What is often missed in the narrative about the quantities of capital, however, is an appreciation of their quality.

U.S. companies and development finance institutions such as OPIC are playing an invaluable role in setting and promoting higher aims for social and environmental performance throughout the developing world.

OPIC and our fellow development finance institutions do this in a wide array of sectors and with a wide array of financial instruments, from microfinance for small-scale enterprises, to loans for hospitals and schools, to guaranties and risk insurance for massive infrastructure projects.

We do this not because such investments have suddenly become low-risk propositions. Many of our partners in the developing world find it difficult to bring the environmental and social facets of their operations up to our standards. However, we have a development mandate to invest and help improve their performance, despite performance risks.

Consider just a few examples from OPIC’s support for equity funds in Africa:

One of OPIC’s portfolio companies in Sierra Leone is the small palm oil processor Goldtree, which supports a supply chain of 9,000 smallholder farmers across 320 small communities. Goldtree offers benefits beyond those required by local laws, including worker’s compensation, sick leave, maternity leave, vacation days, on-site meals and a welfare assistance program. OPIC worked with the company to improve working conditions, strengthen its human resources policies and establish a mechanism for workers to offer suggestions and voice complaints.

The net result of these types of changes: employees are safer; their families have better health care and education; and natural resources are managed more responsibly. Some of these firms become role models. They help to raise local standards for subsequent enterprises, which often provide greater amounts of capital and development.

The Silverlands Fund, which OPIC supports with financing and insurance, invests in projects that are designed to fill critical nutritional needs in the African subcontinent and introduce efficient and more productive farming and livestock management methods in Tanzania and Zambia.

In Tanzania, Silverlands is developing a vertically integrated poultry and feed enterprise that will produce high-quality feed, eggs and day-old chicks to fill a critical need for protein in diets throughout Tanzania. With OPIC’s support, it has built the first soya processing plant in the country, thus improving the entire value chain for this critical source of protein for poultry feed.

OPIC assisted the fund in establishing a strong management system to protect neighboring communities from biological hazards, support workers through the establishment of written employment contracts, improve worker housing and facilities, and eliminate pesticides in downstream chicken feed sources.

In Zambia, Silverlands is introducing more sustainable cattle raising operations through better herd health protection measures, inclusion and training to maximize local employment, and improved working conditions for the legacy workforce. OPIC also is working with Silverlands to develop and implement a pest management strategy that will reduce the project’s reliance on chemical controls, thereby decreasing contamination risks.

Throughout the process, OPIC and Silverlands have had a common goal: to develop sustainable, high-value enterprises by proactively addressing potential environmental and social risks.

The international best practices that we use add economic value to our clients in direct, practical ways. OPIC works on the ground with clients to identify and help resolve issues that could increase costs, reduce efficiency or disrupt operations. We work with clients to resolve issues ranging from reducing excessive overtime hours to improving sanitary facilities for migrant workers. As a lender, OPIC can use its leverage to ensure responsiveness.

These interventions may be small individually but can be powerful cumulatively. They foster development results directly through the use of international best practices, and they inform OPIC’s expertise and effectiveness for future investments.

As more nations look to leverage private capital for development, ensuring such investment leads to positive outcomes at the local level will continue to be at the top of the global agenda.

Elizabeth Littlefield is the President and CEO of the Overseas Private Investment Corporation