We have been anxiously waiting for the Senate Foreign Relations Committee (SFRC) to introduce legislation that promotes electricity access in Sub-Saharan Africa. Yesterday, Senators Menendez (D-NJ) and Corker (R-TN), the respective SFRC Chairman and Ranking Member, introduced the Energize Africa Act (S. 2508). Senators Coons, Isakson, Markey, and Johanns also co-sponsored the legislation. This bipartisan bill is thoughtful, comprehensive, and would give a significant boost to US efforts to promote growth and economic opportunity in the region. Here are three reasons why.
(1) It would ensure that the Obama Administration develops a highly comprehensive multi-year strategy. To date, the Power Africa Initiative has been implemented on a transaction-by-transaction basis. That’s been fine so far, but it’s always been unclear how the disparate activities fit together and whether things will fizzle in 2016. Congress is seeking to change that. As with the Electrify Africa Act, the Obama Administration would have six months to submit a multi-year strategy. While the White House will have the pen on crafting the document, the Senate has provided a very detailed outline to work off (covering 24 separate components). The level of guidance may be a bit extreme, but it will force the Obama Administration to outline a plan that considers all of the major factors required to achieve reliable and commercially sustainable electricity access. This is essential for ensuring that Power Africa outlives the current administration.
(2) It provides the Overseas Private Investment Corporation (OPIC) with new authorities, tools, and resources. OPIC is the cornerstone of President Obama’s Power Africa Initiative. Yet, it remains highly constrained by outdated authorities and inadequate resources. My colleagues and I have argued that Congress should unleash OPIC. The Energize Africa Act takes several important steps in that direction, including:
OPIC Reauthorization: The bill would reauthorize OPIC for five years (through 2019). By comparison, the House Electrify Africa Act contains a three-year reauthorization. The multi-year reauthorization (hopefully of the five-year variety) will remove unnecessary uncertainty that discourages OPIC’s private sector partners from entering into long-term deals.
New Instruments and Tools: The bill would establish a five-year pilot for local currency guarantees to foreign financial institutions that facilitate lending for US investors’ power projects. This will help to crowd in local capital in African countries, which may be sitting on the sidelines today. The Energize Africa bill would also encourage more joint ventures with African companies by lowering OPIC’s US ownership requirement to a simple majority. In addition, it would allow OPIC to provide insurance, guarantees, or reinsurance spanning 30 years for renewable projects. (The current maximum timeframe is 20 years.)
Additional Hiring Authority: OPIC would be allowed to hire up to 20 people on a limited-appointment basis. The average OPIC employee currently oversees roughly $75 million in portfolio exposure, which is a multiple higher than most peer institutions. This demonstrates both the efficiency of, and hard constraints placed on, existing OPIC staff. The bill also indicates that appropriations between 2015 and 2019 should allow for hiring personnel and upgrading systems infrastructure. If enacted, these provisions would boost OPIC’s capacity, allowing the agency to do many more power deals and generate more revenue for US deficit reduction in the process.
(3) It calls for a study on the effectiveness of OPIC’s existing authorities as well as the likely impact of new tools, such as direct investments. The Energize Africa Act provides OPIC with several important new authorities and tools. Yet this critical agency still remains constrained compared to many of its peer institutions. These institutions – such as the Netherlands’ FMO and France’s Proparco – offer the full spectrum of investment promotion services (financing, advisory services, direct investments, etc). The Energize Africa Act authorizes an independent study that will help to inform the ongoing debate about whether Congress should provide OPIC with further authorities down the road, including the ability to provide direct investments. This is another constructive step toward additional development finance reforms.