CAIRO: The Overseas Private Investment Corporation (OPIC), an agency of the United States government that supports American private sector investment in the developing world, is in the process of establishing a $225 million private equity fund for the Middle East and North Africa region. The head of the agency is also in Cairo to explore investment opportunities for the fund and possible OPIC assistance for affordable housing in Egypt.
OPIC President and Chief Executive Officer Robert Mosbacher Jr., who is in the region for an OECD conference on investment in Jordan, discussed his agency s work and strategy for Egypt in a gathering of journalists at the U.S. Embassy. Mosbacher will meet with government officials and businesses during his visit.
The agency is a self-funded organization and its primary business is political risk insurance. This insurance, which protects U.S. businesses against expropriation, currency inconvertibility and political violence, accounts for approximately half of its portfolio amounting to $13 billion of insured assets globally. The balance of its activity is in loan guarantees and private equity funds.
In Egypt, OPIC currently provides $300 million of political risk insurance to U.S. energy companies. It also has outstanding loan guarantees of approximately $20 million.
OPIC will contribute one-third, or $75 million toward the new regional private equity fund. A U.S. fund manager, which has been selected although Mosbacher declined to disclose its identity, will raise up to $150 million and will be responsible for preparing the fund s investment strategy. It s significant money, says Mosbacher, that would be invested particularly in small and medium sized businesses in the host countries that are identified by the equity fund.
Mosbacher explains that his agency focuses on countries that endeavor to create an improved business environment for foreign investors, which requires clear and predictable commitments to the rule of law, as evidenced by not just a legal system in practice, but one that you are convinced there will be sanctity of a contract and if the contract is not observed you have legal alternatives.
Egypt, according to Mosbacher, is one of a few countries in the region that struck me as being quite aggressive and quite committed about improving the investment climate and attracting more foreign direct investment.
The housing market, however, continues to suffer from a shortage of supply, particularly for the low-income segment of society. A number of factors have inhibited investment in this sector, including arduous property registration procedures and the lack of appropriate financing instruments.
A mortgage finance law was passed in 2001 to facilitate the creation of a primary mortgage market. To date, however, the law has failed to stimulate the housing market, which continues to be beset by prolonged registration process and high fees. As a result, the majority of properties are not legally registered.
The lack of affordable long-term financing also discourages home buyers. Because OPIC can lend money over a 15, 20 or 25 year period, says Mosbacher, we are uniquely qualified to help with the creation of a primary mortgage market, meaning the ability to create borrowing potential for low and moderate income people to be able to buy homes without having huge down-payments that have to be made that are unaffordable, or monthly payments that are so steep that you have to try to buy the house in two or three years.
While the agency is in the preliminary stages of exploring the local mortgage market and has not determined any budget for lending to this market, OPIC projects are typically in the range of $250 million.
The agency was involved in a project in Zambia which provided 5,000 housing units to low and middle income families. A non-profit organization was responsible for the screening and selection of families and the United States Agency for International Development created a title registration system for the project.
A South African firm is now considering raising $500 million to expand the Zambian project to other African countries. Mosbacher says that this demonstrates that affordable housing can be a viable business venture.
The fact that one is of low income does not suggest that they re a bad credit risk, Mosbacher explains, adding that the risk of non-payment can be mitigated by appropriate systems and legal structures. Low income people around the world in a variety of home ownership programs are better credit – in other words, they re more faithful at paying their bills – than some people that are much richer.
OPIC follows the foreign policy directives of the U.S. administration. As a result, it has numerous investments in Iraq, Afghanistan and Pakistan. The agency was also in the process of implementing a project in Palestine, but this was suspended following Hamas victory in the recent parliamentary elections.