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The U.S. Wants to Challenge China’s Dominance in Lending to Developing Countries. Here’s How They Plan To Do It.

U.S. president Donald Trump signed the Better Utilization of Investments Leading to Development, also known as the BUILD Act, into law on October 5th, creating a powerful new development finance organization that is aimed at challenging China’s dominance in lending to developing countries. The law combines two existing organizations, the United States Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority to form a new entity called the International Development Finance Corporation (IDFC) with $60 billion in its coffers.

“Instead of giving them a fish, we want to teach them how to fish. “They’ll have to stand on their own two feet. So we’re not in making loans or doing projects that don’t make economic sense.” — Ray Washburne, OPIC CEO

Although U.S. officials and other IDFC supporters often tout the new agency as an alternative for developing countries from borrowing money from China, the reality is that this new agency will actually compete very little, if at all, with China’s development finance institutions. The U.S. and Chinese approach to development finance will differ in three critical ways:

  1. Whereas the Chinese prefer to lend to governments, the IDFC will only provide funds for companies and other private sector entities.
  2. Chinese funding is often used to underwrite large infrastructure projects but the IDFC loans will instead focus on providing capital for businesses.
  3. Market considerations typically do not factor very high in China’s lending priorities, whereas IDFC loans will be intended to fill gaps in the market that are otherwise unfulfilled.

Supporting business in Africa, Asia and other developing regions is definitely part of the IDFC’s mandate, but the agency is also unapologetically designed to support U.S. businesses in these markets. “The IDFC will offer US companies more assistance as they enter new, challenging markets and will act as a critical catalyst in new investments helping to mitigate risk,” said Aubrey Hruby, a Washington, D.C.-based Africa analyst at the Atlantic Counciland an avid IDFC supporter.
Show Notes:

About Aubrey Hruby:
Aubrey Hruby is an adviser to investors and companies doing business in Africa. She is a Senior Fellow at the Africa Center at the Atlantic Council and the co-author of the award-winning book,The Next Africa (Macmillan, July 2015).

Aubrey has a successful track record in African market entry, project/deal identification, investment facilitation, and experience in the infrastructure, energy, agribusiness, financial services, FMCG, healthcare, and textiles/apparel sectors. She is Managing Partner of Noveni Advisors and a co-founder of AXN.

Aubrey served as the Managing Director of the Whitaker Group, where she helped facilitate over $2 billion in investment and capital flows to Africa. Aubrey has consulted extensively in 20+ African markets (including Ghana, Nigeria, Ethiopia, Tanzania, Kenya, Uganda, Rwanda, and South Africa). She has worked with Fortune 500 companies to design and implement successful investment and market entry strategies and advises the US Chamber of Commerce’s Africa Division. Over the past ten years, Aubrey has regularly led CEO-level delegations to African countries and coordinated presidential visits to the United States.

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