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CDC Group plc Development Report 2008

Growth for development Contents

Chapter Chapter 1 2

Introduction CDC’s mandate CDC’s evolution 2 Statement from the Chief Executive 6 Capital for private sector 14 A new, intermediated, 4 Statement from the Chair development in poor countries model for development finance of CDC’s Best Practice and Development Committee

Chapter Chapter Chapter 3 4 5

Promoting responsible investment Measuring the development Development highlights in 2008 and business practices effects of CDC’s investments 32 Financial performance 20 CDC’s new Investment Code 26 CDC’s new monitoring and 34 Economic performance: employment on environmental, social and evaluation (M&E) system and generation of public revenues governance (ESG) matters 28 CDC’s M&E work 2008: 40 ESG performance and serious 12 completed evaluations incidents 41 Private sector development

Chapter Chapter 6 7

Regional reviews Industry sector reviews and SME funds Appendices 46 Sub-Saharan Africa 69 Focus industry sector reviews: 86 Appendix 1: CDC’s Investment Code 54 Asia 69 Energy & utilities 91 Appendix 2: Performance indicators 62 Other regions – Latin America and 72 Information and communication for CDC’s monitoring and North Africa technologies (ICT) evaluation system 74 Financial services 76 Microfinance 94 Footnotes and data disclaimer 78 Brief industry sector reviews: 78 Mining IBC: CDC’s fund managers 78 Industry & materials 79 Agribusiness 79 Consumer goods & services 80 Healthcare 80 Infrastructure 81 Cleaner technologies 82 SME funds Our mission is to generate wealth, broadly shared, in emerging markets, particularly in poorer countries, by providing capital for investment in sustainable and responsibly managed private sector businesses.

Our target is to make more than 75% of new investments in low income countries* and to invest more than 50% of our capital in sub-Saharan Africa.

* Those with an annual gross national income (GNI) per capita of less than US$905. 2 CDC Growth for development

Statement from the Chief Executive

I am delighted to present CDC’s first Development’s (DFID) strategy of helping report on the development effects of our to build a thriving private sector in the investments. This document is just as developing world to reduce poverty. important as our annual report and Not least in the light of the current credit accounts and marks a major milestone crisis, CDC’s commitment to continue for CDC. It is the first of its kind for CDC, to provide capital to private sector and sets out some of the broader businesses in developing countries is development contributions of CDC’s of critical importance to help promote investments across a range of economic economic growth. CDC is able to make sectors in the poor countries of the world. this commitment because it has Going forward, we will publish reports significant resources at its disposal due to every year which will continue to evolve the financial success of the last five years. with further analysis of the contributions CDC’s capital makes to development. Responsible investment and business practices are critical to ensure that No country in the world has been able to investments in poor countries generate sustain poverty reduction and increase these development effects without income levels without economic growth. destroying the environment and while Flourishing businesses of all kinds and ensuring safe and fair working conditions sizes are essential for that growth: they for employees. CDC’s new Investment employ and train people, pay taxes that Code, published in 2008, is a key allow governments to finance public instrument for us to ensure consistent services and infrastructure, and invest adherence to minimum requirements for in research and development. Thriving responsible business operations in line businesses provide the poor with with international good practices. Private increased access to new and higher equity funds are long-term investment quality goods and services at competitive vehicles and are therefore very well suited prices as companies reach scale in local to promote improvements in corporate production and sales. All industry sectors ESG practices over the investment period and companies of all sizes contribute to for the benefit of the environment and poverty reducing growth. local populations. According to our evaluation work last year, 86% of the CDC has supported promising businesses portfolio companies covered by the in poor countries for 60 years, helping evaluations made improvements on them to grow and improve upon their ESG practices during the fund managers’ practices in terms of how they manage investment period. environmental, social and governance (ESG) matters. We now invest through Historically, CDC has invested in private equity, mezzanine and other funds. businesses in the emerging markets These 127 funds, managed by 59 fund of Africa, Asia and Latin America. managers, have in turn invested CDC’s A fundamental part of CDC’s remit is to capital in 681 different businesses in invest where other investors are reluctant developing countries. Wholly owned by to do so because of the perceived high the UK government, we are an important risks of emerging market investments. part of the Department for International Some countries, most notably China, Statement from the Chief Executive 3

are becoming more attractive to private CDC and the fund managers that invest in a sustainable manner and, in doing so, sector investors as well as richer. our capital have helped companies across creating opportunities for the poor to help Therefore, we agreed a new investment Africa introduce HIV/AIDS programmes themselves and their families out of policy with DFID last year to ensure that for their employees, mining companies poverty, is at the heart of all of CDC’s we focus CDC’s investments in the improve environmental safeguards and investment activities. countries where our capital is the most health and safety standards, service needed. From 2009, we will focus our providers enforce minimum wage commitments on the poorest countries, payments, and food retailers and with a concentration on sub-Saharan producers meet international food Africa and South Asia. safety standards. Of course, with such a large portfolio of companies which CDC’s model for development finance operate in some difficult environments, Richard Laing since the spin-outs of Actis and Aureos things don’t always go according to Chief Executive is exciting and innovative from two key plan, and we do have instances of perspectives. First, we leverage additional business failure, governance frailty and third party capital to be invested environmental concern. However, we alongside CDC in developing countries. work hard with our fund managers so that For example, Actis has successfully these are identified and rectified as soon raised US$2.9bn over the last four years. as practicable. Secondly, our investments with 59 fund managers also strengthen local At all levels of business, from the investment capacity and promote more small and medium enterprises to efficient capital markets where these are larger corporations, entrepreneurs often weak. All except one of CDC’s are transforming their businesses by 52 private equity fund managers have adopting good commercial disciplines local offices in 34 different developing to help them grow. 82% of the portfolio countries. 42% of our fund managers are companies included in CDC’s evaluation managing private equity funds for the first work last year increased turnover and time. CDC’s willingness to engage with 58% increased profitability. We know and support new fund managers often that our portfolio companies have acts as a stamp of approval for other paid US$2.2bn in annual taxes to their investors to follow suit. 83% of the fund national governments. managers covered by our evaluation work in 2008 raised successor funds, with From our evaluation work in 2008, we US$1.1bn in new capital. found that 76% of companies showed an increase in employment with 30,000 new I have seen first hand how CDC’s capital jobs created. In the countries in which we and our fund managers benefit invest, the United Nations estimates that businesses and the livelihoods of people each employed person supports in poor countries. Across our portfolio, approximately four others. On that basis, CDC’s fund managers are helping we estimate that CDC’s 681 portfolio companies build value by improving companies are supporting well over environmental management, labour and 3 million people – a major contribution working conditions, health and safety to development in the poorest countries standards, and corporate governance. of the world. Helping businesses to grow 4 CDC Growth for development

Statement from the Chair of CDC’s Best Practice and Development Committee

• investments are profitable, thus medium size enterprise (SME) funds for this returning capital to CDC for further report. We will provide in depth reviews of investments and demonstrating to other other sectors in future publications. Our investors that profitable investments report includes key, summary findings can indeed be made in poor country from the 12 evaluation reports that we markets where they are traditionally completed last year. Our work covered reluctant to invest; 119 of CDC’s 681 portfolio companies • investments provide benefits for the and produced promising findings as well local economy, in terms of commercially as highlighting issues for further efforts. successful growing businesses that generate employment and tax revenues; During 2009, we will increase our • fund managers and their portfolio evaluation work, with 20 new evaluations companies adhere to responsible under way. Seven of these will be investment and business practices completed by external consultants, who from the environmental, social and will provide an important independent governance (ESG) perspectives; and complement to CDC’s own evaluation • broader private sector development work. We will also commission an effects are realised as appropriate and independent audit of CDC’s processes relevant, from privatisations of formerly to implement our new Investment Code. state-owned companies in China to driving the mobile telephony revolution Finally, during 2009, we will commission across Africa. work on how businesses in developing I have been a board member of CDC for countries can assess risks and realise ten years, participating in its evolution CDC's Best Practice and Development opportunities associated with climate from a direct investor and lender in the Committee comprises myself as Chair change, as well as how different types of 1990s, through the creation of Aureos in and three other non-executive directors. businesses can improve their policies and 2001 and Actis in 2004, to its successful It met four times during 2008 and practices from the gender perspective. progression as a leading private equity reviews and authorises all monitoring fund-of-funds investor today. It has been and evaluation work. Importantly, it is The long run impact on poverty reduction an exciting journey, with several lessons independent of the executives who comes from helping to build globally along the way on how to ensure that the complete the evaluations. Serious competitive businesses in poor parts of public capital entrusted to us delivers the incidents are also reported to this the world. CDC’s “intelligent risk capital” highest possible development value. Committee (and the board) and we ensure attracts co-investment from other equity that appropriate action is taken in response. capital – often genuinely private – as a During the 2004-07 period, CDC focused consequence of the CDC reputation. on building its new, indirect investment We will continue our work to strengthen This enhanced quantum of risk capital in business model. This model is understood CDC’s monitoring and evaluation systems turn attracts pools of loan capital which and trusted in capital markets and has during 2009 as well as the way in which can benefit considerably from investing therefore been very effective in attracting we follow – and require our fund managers alongside CDC’s risk capital and the skilled private risk capital into poorer countries to follow – our ESG guidelines, focusing governance of CDC’s fund managers. in line with our shareholders objective. particularly on companies in high-risk We have been investing with increasing sectors. The governance influence numbers of new fund managers and thus which comes with private equity is often attracting further third party capital to considerable. Our fund managers usually poor countries, as well as strengthening have a significant impact in turning their local investment capacities where capital portfolio companies into very effective Prof. Jonathan Kydd markets are still very weak. In 2008, we and often innovative entities. Chair of CDC’s Best Practice made a major investment in strengthened and Development Committee monitoring and evaluation systems and Over the following pages, we tell the story processes to capture the development of CDC’s part in supporting private sector effects of CDC’s investments. development and economic growth across our investment geographies and As an indirect investor, with all the benefits throughout different sectors of the this new business model brings to economy where our portfolio companies developing countries, CDC has to be operate. We have focused particularly practical and realistic about what data to on energy and utilities, information and expect from fund managers. We focus our communication technologies, financial requests on key information to ensure that: services, microfinance and small and CDC’s mandate

Private sector development is the engine for economic growth Chapter and poverty alleviation. CDC provides capital for fund managers to invest in new and growing businesses that drive such development. CDC’s investments are focused on the poor countries of the world, where there is a shortage of capital. CDC’s capital is invested in companies in 74 developing countries with a focus on sub-Saharan Africa. 6 CDC Growth for development

Chapter 1 – CDC’s mandate Capital for private sector development in poor countries

Private sector development: Sustained economic growth in China CDC’s capital is invested in an engine for economic growth of around 8% over the past 20 years has companies in 74 developing and poverty alleviation lifted more than 400 million people out countries1,2 throughout of poverty. Conversely, no country has Rwanda grew by 11% in 2008, even succeeded in reducing poverty without the world though most of the world suffered from a economic growth. recession during the latter half of the year. Aid as a percentage of Rwanda’s gross One fifth of the world’s population, some £928m CDC portfolio value domestic product (GDP) has been cut by 1.2 billion people, still live in absolute half over the past decade. Wages in key poverty, surviving on less than US$1 per sectors have risen by more than 20% day. There is a wide consensus among 681 portfolio companies on an annual basis without triggering policy makers and economists that inflation. This economic progress is growth is the most important factor in impressive for one of the poorest sustainable poverty reduction. Research 59 fund managers countries in the world with a per capita shows that growth accounts for more than gross national income (GNI) of about 80% of poverty reduction in the long run.6, 7 US$260 per year and a recent history A World Bank study found that the 127 funds of violent political turmoil. Rwanda’s experiences of 19 low-income countries president Paul Kagame is hopeful that suggest that 1% of growth in per capita economic growth through private sector GDP is associated with a 1.3% fall in the led development will change the lives rate of extreme poverty and a 0.9% fall in of Rwandans within a generation. the proportion of people surviving on less than US$2 per day.8 The aspirations of Rwanda, a small and poor landlocked African country, follow Any successful strategy for poverty the successful examples of countries like alleviation must include measures to China and Malaysia, where private sector promote rapid and sustained economic led growth has fuelled a revolution in growth. Commercially successful improved living standards and poverty businesses provide employment alleviation over the last four decades. opportunities which are critically needed South Korea pioneered the Asian private in poor countries that often suffer from sector led growth boom in the 1960s chronically high unemployment rates. and 1970s, and has now entered the More than 80% of Africa’s labour force privileged group of high-income gain their livelihood through work in Organization for Economic Cooperation subsistence agriculture and the large, and Development (OECD) countries. informal economy, often through small

CDC’s investments by year end 2008: 681 companies in 74 countries

More than 25 investments 15–25 investments 6–15 investments 1–5 investments Chapter 1 – CDC’s mandate 7

“The cycle of aid and poverty sales activities. Profitable and growing growing share of developing countries’ businesses also generate increasing tax economies and often provides relatively is durable: as long as poor revenues that allow low income country secure and well paid jobs. nations are focused on governments to fund their own receiving aid, they will not work development programmes, through Businesses across all economic sectors investments in primary education, health invest in research and development with to improve their economies. services and infrastructure. new innovations to address market needs. Nobody owes Rwandans They also provide training opportunities anything. Government Successful private sector businesses for their workforce to improve skills and bring a range of benefits to the people productivity. activities should focus on in poor countries in terms of expanded supporting entrepreneurship access to goods, services and One of the most serious barriers to infrastructure. Nearly 75% of Africans do sustainable economic growth in poor because it unlocks people’s not have power in their homes. 700 million countries is the lack of capital available minds, fosters innovation and people in South Asia similarly lack access for new and expanding businesses. While enables people to exercise to electricity. A large number of people in investors from developed countries are sub-Saharan Africa and South Asia still increasingly discovering opportunities in their talents. We have a clear lack access to modern communication China, Latin America and the major Indian strategy to export based on technologies and are therefore excluded cities, commercial investors still shy away sustainable competitive from benefits arising from connectivity to from the poorer emerging markets in local and international markets and sub-Saharan Africa, rural India, and other advantages. We sell coffee access to banking and healthcare poor country markets which are seen as now for high prices to the services now provided over mobile risky, unknown and problematic. phones and the internet. Quality products world’s most demanding and services at affordable prices are still in Total accumulated global foreign direct purchasers; our tourism low supply in many low income countries, investment amounts to about US$15.2 experience attracts the best particularly in rural areas. Oil and natural trillion. Foreign direct investment in resource exploration, if managed developing economies makes up an customers in the world and sustainably, can be a major driver behind estimated US$4.2 trillion of that amount, market research reveals that increased income levels and living with a relatively small proportion, perceptions of Rwandan tea standards. Agribusiness is the single US$250bn, invested in sub-Saharan largest source of employment in poor Africa.10 With more than 80% of the are improving. We belong to countries, accounting for 64% of world’s population, developing economies a new school of development employment and 34% of GDP.9 host only a quarter of global foreign direct thinkers and entrepreneurs, Agribusiness and forestry can bring major investment stock. Sub-Saharan Africa benefits for economic growth and accounts for one seventh of the world's with those who demonstrate employment creation, especially in rural population, but has received less than they have not just a heart, areas where job opportunities are usually 1% of foreign direct investment. scarce. Sustainable agribusiness and but also a mind for the poor.” forestry can also have important positive effects to counteract climate change. Paul Kagame, President of Rwanda, Industry accounts for a large and fast comments in the Financial Times, 8 May 2009.

Share of people living on less than US$1.25 per day: actual and estimated progress towards the United Nations’ Millennium Development Goal (MDG) to eradicate extreme poverty* East Asia & Pacific (%) Europe & Central Asia (%) Latin America & Caribbean (%)

60 10 15 55 51 11.3 10.9 50 8 12 10.1 10.9 10.7 40 5.3 8.2 27 6 4.8 4.8 9 30 36 36 4.4 3.8 5.7 4 20 28 2.7 6 5.4 5 2 1.0 3 10 17 2.1 0 0 0 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015

Middle East & North Africa (%) South Asia (%) Sub-Saharan Africa (%)

5 60 58 57 59 58 4.3 4.1 4.1 4.2 52 60 55 50 47 47 44 44 51 4 3.6 3.6 40 50 40 37 3 40 2.2 26 30 30 2 20 20 29 1 1.8 10 25 10 0 0 0 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015

Poverty rate at US$1.25 per day Source: World Bank estimates. Projected poverty rate Path to MDG

*To halve, between 1990 and 2015, the proportion of people whose income is less than US$1 per day. 8 CDC Growth for development

CDC’s mandate continued

CDC’s mandate is to be part of the CDC’s mandate: “If we stop thinking of the global effort to bridge this shortage capital for development of investments benefiting poor countries, poor as victims or as a with a particular focus on the underserved CDC is a development finance institution burden and start recognising countries in sub-Saharan Africa. wholly owned by the UK government. Supporting the private sector is a key them as resilient and creative Annual global foreign direct investment element of the Department for entrepreneurs and value peaked in 2007, with a total of US$1.9 International Development’s (DFID) conscious consumers, trillion. With the financial crisis in 2008, poverty reduction strategy and its private a whole new world of foreign direct investment flows were sector programme, and complements estimated to have declined by 15%, and DFID’s aid and humanitarian support opportunity will open up.” are expected to further decrease during programmes. CDC is a core part of 2009.11 The OECD 2009 edition of African DFID’s strategy to support private sector C.K. Prahalad, author of “The Fortune Economic Outlook indicates that foreign development in its partner countries. at the Bottom of the Pyramid”. direct investment decreased by about CDC invests its capital so as to attract 10% in 2008 for the 47 African countries further investors to poor country markets. covered by the report.12 The United Nations’ agency UNCTAD predicts that Responsible investment and business the amount of foreign direct investment practices are crucial to ensure that received by developing nations will investments in poor countries generate decrease during 2009 as well as these development effects without during 2010.10 destroying the environment and while ensuring safe and fair working conditions As a long-term investor in emerging for employees. CDC’s mandate is to markets, CDC’s capital is needed more provide capital for investment in than ever during the current global sustainable and responsibly managed economic downturn. private sector businesses and by doing so promote economic growth which ultimately drives a reduction in poverty.

International best practice on environmental, social and governance matters are continually evolving and CDC aims to be at the forefront of best practice. In 2008, CDC updated its standards for responsible investment and business practices in light of developments in international best practice. The resulting new Investment Code on environmental, social and governance matters (ESG) is appended to this report and featured on CDC’s website, www.cdcgroup.com.

CDC’s investment universe under the investment policy for 2009-2013

Low income1

Middle income2 Chapter 1 – CDC’s mandate 9

CDC’s business model: capital The private equity investments of CDC’s CDC’s capital accounts for and investor know-how to assist fund managers usually extend for several between 3% and 100% of businesses in developing countries years. This provides ample time for any one fund. The average to grow entrepreneurs to realise corporate growth opportunities and bring about is 26% CDC is not a direct investor but deploys improvements in business practices. its capital through 59 different fund CDC’s fund managers play a hands-on managers investing in 127 funds. CDC’s role in nurturing the companies in their CDC’s fund managers fund managers in turn invest in promising portfolios and add value through business acquire both small and companies in poor countries, providing expertise and the promotion of large stakes in companies these companies with access to new responsible business practices. In this capital that allows them to expand and way, the private equity investments of improve upon their businesses. Other CDC’s fund managers have a direct investors, both public and private, invest development benefit in increasing the alongside CDC with these fund managers. likelihood of successful and sustainable This creates an increasing pool of capital corporate growth. CDC’s fund managers available for fund managers to invest in assist their portfolio companies in a businesses in poor countries. variety of ways, including improving corporate governance, a crucial part of In recent years, CDC has largely this being promoting high environmental committed capital to fund managers that and social standards. make private equity investments. Private equity funds provide CDC and other Typically after three to seven years of investors with an ownership share in the business improvements, CDC’s fund businesses in which fund managers managers sell their investments in invest. That capital is recovered when portfolio companies. This can happen such a shareholding is sold several years through an initial public offering in the later. Private equity is a long-term local stock market, a trade sale to another investment vehicle and as such is ideally company in the same sector, a new suited to bring capital to poor countries investment by another investor, or, and to help commercially viable in some cases, an investment by the businesses in these countries realise their company’s own management. Profits growth potential in a sustainable way, with from these sales are returned by the fund subsequent benefits for economic growth manager to CDC and other investors. and poverty reduction. CDC reinvests the proceeds from these long-term investments in new funds, which in turn deploy CDC’s capital with new companies in need of growth capital. Capital that is no longer needed by businesses, which have found other investors, can thus be redeployed in new companies in need of growth capital.

CDC’s business model: capital for investment in growing businesses in developing countries

Mobilising other people’s CDC capital 4 money Third party capital is 1 CDC invests with fund managers. invested alongside CDC’s capital Fund managers 2 CDC’s fund managers invest in companies in developing countries. 1 Portfolio companies 3 3 Portfolio companies expand and improve upon their businesses.

Economic growth 4 Fund managers sell portfolio 2 companies and return proceeds to CDC and other investors. Proceeds are reinvested by CDC. 10 CDC Growth for development

CDC’s mandate continued

Profitable investments are likely to CDC’s investments focus: the poorest Current portfolio contribute to economic growth, and countries and sub-Saharan Africa through growth to poverty reduction.13 The links between investments, growth Sub-Saharan Africa has the highest Sub-Saharan Africa and poverty reduction are well established proportion of people living in poverty, with 50% of CDC’s portfolio by academic research. Investments have 51% of the population, some 400 million been referred to as “the foundation of people, below the poverty line. Almost £466m, 28 countries all models of economic growth”.14 By 30% of all poor people in the world live in demonstrating profitable investments in sub-Saharan Africa. More than 60% of poor countries, CDC can encourage other Nigerians, almost 90 million people, live Asia investors to deploy their capital in these below the poverty line. In Tanzania, more emerging markets also. than 80% of the population, 30 million 39% of CDC’s portfolio people, are poor. South Africa, a relatively £363m, 28 countries At the end of 2008, CDC had a portfolio prosperous country by African standards, value of £928m invested in 681 is home to 10 million people living in companies. CDC’s new investments, absolute poverty, representing 20% of the through its fund managers, in 2008 population. South Asia accounts for more Latin America amounted to £436m, a record amount for than 40% of all poor people in the world. 5% of CDC’s portfolio CDC. In light of the financial crisis and Almost 600 million people in the region subsequent slowdown in investment live below the poverty line. The majority of £49m, 13 countries activities, it is essential for CDC to ensure the poor in South Asia reside in rural India, that its capital continues to support where 340 million people, 44% of the rural promising businesses in poor countries. population, still live in poverty. Rural China North Africa In the future, CDC plans to complement is home to 200 million poor people, its private equity fund investments with accounting for 15% of the world’s poor, 6% of CDC’s portfolio provision of debt capital through financial while the urban centres of the rapidly intermediaries to companies in sub- growing Chinese economy enjoy much £50m, 4 countries 15 Saharan Africa, as such capital is in short higher living standards. By comparison, supply especially in the poorest countries. other emerging markets such as Latin America, North Africa and Eastern Europe 1 This allows CDC to invest in countries that Low income countries are well equipped to attract private equity have much lower poverty rates 56% of CDC’s portfolio investment, while making debt capital as well as lower absolute numbers available to countries where equity is still of poor people. £524m largely unestablished.

Middle income countries2 44% of CDC’s portfolio £404m

£57m in small and medium size enterprise (SMEs) funds

CDC’s geographic investment focus World’s poor by region* CDC portfolio value by region compared to other DFIs (100%)*

Africa, Caribbean, Pacific Asia Other 67 1 Sub-Saharan Africa 28% 1 Sub-Saharan Africa 50% 6 5 62 60 39 47 4 5 2 China 15% 5 2 China 11% 39 3 India 33% 4 3 India 18% 4 Other Asia 18% 4 Other Asia 10% 5 Latin America 5% 5 Latin America & 3 Caribbean 4% 6 North Africa 6% 16 3 1 56 25 6 Middle East & North 27 45 Africa 1% 27 7 Europe & Central Asia 1% 28 2 2 1 11 13 CDC IFC DEG Proparco FMO * Per World Bank regional divisions (German) (French) (Dutch) * From the EDFI 2008 Comparative Analysis of EDFI Members Chapter 1 – CDC’s mandate 11

Sub-Saharan Africa is lagging behind Sustainable economic growth must be other regions in reducing poverty rates. broadly based on a mixed economy. Top investment destinations While the rapid economic growth rates in Businesses of all sizes, operating in Asia are expected to reduce poverty rates all sectors of the economy, are a to half 1990 levels by 2015, as stipulated prerequisite for sustainable development. India by the United Nations’ Millennium Manufacturing, financial services, 18% of CDC’s portfolio Development Goals, 37% of the technology, consumer goods and population of sub-Saharan Africa is services, industry, retail and agribusiness 144 companies expected to remain poor by this time. all have vital contributions to make to £166m As a comparison, 25% of the population economic growth and sustainable of South Asia is expected to remain in development. SMEs, start-ups and larger poverty by 2015. businesses are all important. CDC’s fund Nigeria managers invest across the full range of Compared to other development finance sectors and in businesses of all sizes and 12% of CDC’s portfolio institutions (DFIs), CDC is relatively more at all stages of development. 44 companies focused on the poorest countries. CDC has a higher share of its total investments This report highlights the development £111m invested in the low income countries in value of multiple industry sectors and sub-Saharan Africa and South Asia than focuses particularly on CDC’s investments any other DFI. in energy and utilities, information and China communication technologies (ICT), 11% of CDC’s portfolio Going forward, CDC’s investments will financial services, microfinance and be even more focused on the poorest funds for investment in SMEs. 93 companies countries. CDC’s investment policy for £101m the 2009-2013 period is to invest the bulk of its capital in sub-Saharan Africa and low-income countries in other regions1 South Africa according to the following targets for new investments: 10% of CDC’s portfolio 38 companies • 75% in low-income countries; £90m • 50% in sub-Saharan Africa; and • up to £125m for small and medium size enterprise (SME) funds in other developing countries. Tanzania 9% of CDC’s portfolio The new investment policy strengthens CDC’s commitment to provide capital 12 companies to businesses in the countries that need £85m it the most to stimulate private sector development, promote economic growth, and, ultimately, help to reduce poverty.

CDC’s investment value by sector (£m) CDC’s portfolio companies by sector CDC’s new investments (£m) (number of companies) 436 Energy Energy & utilities 126 & utilities 44 412 ICT* 83 ICT* 56 200 156 257 Mining 64 Mining 29 Industry & Industry & materials 127 materials 120 2004 2005 2006 2007 2008 Agribusiness 49 Agribusiness 33 Consumer Consumer goods & goods & services 152 services 119 Financial Financial services 151 services 156 Microfinance 25 Microfinance 48

Healthcare 55 Healthcare 26 Infrastructure 80 Infrastructure 42

Cleaner Cleaner technologies 16 technologies 8 * Information and communication technologies 12 CDC Growth for development

CDC’s mandate continued

Kosan Crisplant is developing and Key data1 Kosan Crisplant, Cameroun investing in mobile filling plants to Provision of cleaner burning distribute LPG throughout Cameroun. Investment:2 €1m The company aims to access the most Investment period: 2005-present fuel for the rural poor remote areas of the country, where lack of basic roads and other infrastructure Sector: Industrials, commercial services In developing countries, where people restricts the availability of LPG. Fund manager: ECP typically use coal and biomass for Employment: 30 cooking and heating, indoor air pollution A key constraint in promoting the use of Employment growth:3 25 is a major cause of health and LPG to the poor is the cost of storage Turnover: €980,700 environmental problems. Burning indoor bottles. With help from ECP, Kosan Turnover growth:4 €520,500 fires and stoves exposes people to high Crisplant has developed a pricing plan to EBITDA: –€206,500 levels of pollutants which increase the better suit the needs of the lower income EBITDA growth:4 –€28,200 risk of eye and lung infections. 1.6 million consumers. This initiative was designed Taxes paid: US$1,700 deaths worldwide are attributed annually to reduce the up-front cost of using LPG. to the indoor burning of biomass. Without Cylinders sold by Kosan Crisplant are Footnotes for Key data electricity to their homes, families must subsidised by the company and sold at 1 From year-end 2008, except for when stated otherwise. also spend time each day gathering fuel, 2 €1m invested by ECP. CDC’s investment in ECP’s Central half of the normal price. The cost of African Growth SICAR fund is €5m; total fund size is €24m. which reduces time spent in education or subsidisation is offset by the increased 3 2005-2008. employment. The burden of gathering numbers of people buying gas from 4 2007-2008. firewood usually falls on women. Kosan Crisplant.

Cameroun has a population of 18.5 million, Kosan Crisplant is, accordingly, a major with around 40% living below the poverty contributor to improving the provision line on less than US$2 per day. A large of access to energy for the poor in share of the population, particularly in Cameroun, allowing households to cook rural areas, lack access to energy. in a safe and sustainable manner, with lower emission of greenhouse gases. Kosan Crisplant Cameroun currently Delivering fuel to the villages allows supplies liquefied petroleum gas (LPG) the poor, particularly women, to focus and equipment with the assistance of on income generating activities and distributors and retailers through its raising their children rather than on depots in Douala, Yaoundé, and Limbe, collecting fuel. three of Cameroun’s largest towns, and in the north-west and western regions of Kosan Crisplant has worked with the the country. LPG is a cleaner burning fuel Camerounian Ministry of Energy and than wood or charcoal. It releases fewer Mining to improve national regulations. greenhouse gases when burnt, emitting The company’s safety systems and no smoke and very few residual particles. procedures willl set the example for It is therefore safer for indoor and new legislation governing the sector. domestic use than traditional fuels. Kosan Crisplant Cameroun is a joint venture between the Danish firm Kosan Crisplant, CDC’s fund manager ECP, and the Danish development finance institution IFU. It is a start-up company, projected to generate positive EBITDA levels in 2009. CDC’s evolution Chapter

Created in 1948 to promote private sector development in the UK’s former colonies, CDC has grown the public capital entrusted to it and provided finance to enable ever increasing numbers of companies in developing countries to realise their growth potential. In 2001 and 2004, two new private equity fund managers, Aureos and Actis, were created to manage CDC’s existing investments. CDC became an indirect investor and as such, was able to promote further third party capital to be invested in developing countries as well as local capacity building through investments with new fund managers. Today, CDC has £928m invested in 681 portfolio companies through 59 different fund managers with offices in 34 developing countries. 14 CDC Growth for development

Chapter 2 – CDC’s evolution A new, intermediated, model for development finance

From Colonial Development Corporation to today’s CDC Group plc: over 60 years of investment in businesses in poor countries.

1948 1950/60 1970/80

1948 1952 1970 The Colonial Development Corporation – CDC starts Molopo cattle ranch A loan to Merpati Airlines, Indonesia, CDC – set up to support private sector in Bechuanaland (now Botswana), is CDC’s first investment outside the development in Britain’s colonies. CDC’s which was to become one of the Commonwealth. first offices were established in Kenya largest in southern Africa. and Nyasaland (now Malawi).

1949 1963 1987 CDC makes its first industrial investment With most British colonies now CDC’s first investments are made in the Chilanga cement plant in Northern independent, CDC is renamed in India and Pakistan. Rhodesia (now Zambia) and acquires Commonwealth Development Borneo Abaca in Malaysia, which was Corporation. to become a major producer of palm oil. Chapter 2 – CDC’s evolution 15

CDC’s new model for The successful creation of Actis and Actis is now a well established name in development finance Aureos: two leading new private equity emerging markets private equity. Aureos is fund managers for emerging markets widely recognised as the leading player in CDC has supported promising businesses investing in SMEs in the developing world. in Africa, Asia and Latin America for over As part of the restructuring process, There is probably no other company that 60 years. CDC was the first development the majority of CDC’s staff of some 200 can match Actis’ size and spread in the finance institution (DFI). It was established people was spun off into two privately emerging markets: the firm now has in 1948 to strengthen the economies of owned private equity fund management substantial operations in Africa, India, the former British colonies by providing companies, Actis and Aureos, the former China, South East Asia and Latin America. finance in terms of loans and equity for focused on investment in larger Actis is still CDC’s single largest fund businesses. In 1970, CDC started companies in emerging markets and manager, representing 49% of CDC’s investing outside of the Commonwealth. the latter on small and medium size portfolio value. CDC has been profitable in all but four enterprises (SMEs). CDC, which years since 1955. As with many other continued to own the financial assets built The impact of the restructuring of CDC investors, CDC has seen a decrease in its up over the years, pays Actis and Aureos and the establishment of Actis and Aureos portfolio value with the global recession fees and a share of profits for managing has been dramatic in terms of attracting during 2008. investee companies on CDC’s behalf. new capital to poor countries. Actis has raised almost US$2.9bn from investors For 60 years, CDC has reinvested its At the time of the restructuring in 2004, other than CDC over the last four years, profits, allowing increasing numbers of CDC’s aim was principally to stimulate the majority from pension funds, companies to benefit from CDC’s capital. further flows of capital and especially endowments and other private sector CDC has not had any new funding from private capital into the poorest countries institutional investors. the UK government for 13 years. of the world. The means to do this was firstly to build Actis and Aureos into two Aureos has raised US$575m for During the first 50 years of its operations, world-class private equity management investment in SMEs since 2004. The CDC directly provided loans and equity to firms focused on the emerging markets, majority of Aureos’ funding has come companies across the emerging markets. and secondly for CDC to diversify its from DFIs whilst, like Actis, Aureos has Since 2004, CDC has invested primarily commitments gradually to fund managers also diversified its sources of capital through private equity funds that in turn located in poor countries, and in this way to include pension funds and private invest in companies in the poor countries build local capacity and stimulate the institutions. The strong fundraising by of the world. This new investment model emergence of better functioning capital Actis and Aureos shows the success for CDC was created from a major markets. of CDC’s strategy of investing its capital restructuring by CDC’s shareholder, through these fund managers to attract the UK Department for International further investors to poor countries. Development (DFID). Two new private equity fund managers: Actis and Aureos were created to manage CDC’s existing investments and CDC became a fund- of-funds. 1990 2000 2008

1992 2001 2007 CDC invests in its first private equity Aureos is created to manage CDC’s The majority of CDC’s investments fund in sub-Saharan Africa, Ghana investments in small and medium in power assets through Globeleq are Venture Capital Fund, to attract more size enterprises (SMEs). sold, generating record profits that are commercial capital to Africa from recommitted with new fund managers. other investors.

1997 2004-2005 End of 2008 Prime Minister Tony Blair announces Actis is spun out of CDC as a new that CDC is to become a Public private equity fund manager charged Private Partnership (PPP). with managing CDC’s previous direct CDC has £928m invested in: investment portfolio and to raise further private capital for investments • 681 portfolio companies in emerging markets. CDC starts operating as a fund-of-funds and invests with 10 new fund managers. • 127 funds • 59 different fund managers 16 CDC Growth for development

CDC’s evolution continued

“CDC has made a credible CDC’s 57 new fund managers: CDC’s success depends to a large extent local capacity building and on the selection of strong fund managers. contribution to economic catalytic effects for further capital CDC looks for experience and a development in poor to developing countries compelling investment strategy: countries while also After Actis and Aureos were spun out • in line with CDC’s focus on the poorest encouraging other foreign of CDC, CDC started to commit capital countries; and investors to engage to an increasing number of other fund • a record of successful investments with them.” managers, located throughout the in commercially viable and promising emerging markets. companies.

The UK National Audit Office Report Since 2005, CDC has committed almost CDC also requires a strong commitment on DFID’s oversight of CDC, 2008. US$3.5bn to 57 new fund managers. to responsible investment principles and Alongside CDC’s commitments, other requires its fund managers to sign up to investors have committed US$17.7bn to CDC’s Investment Code on environmental, these 57 fund managers. More than 90% social and governance (ESG) matters. of the capital invested alongside CDC is from private sources. In many cases, CDC played an important role in attracting new investors to funds by working actively with fund managers to help them raise capital. CDC is often seen as a “stamp of approval” for new fund managers in emerging markets, which is reassuring and attractive for other investors. More broadly, CDC has been part of a process through which investors have been encouraged to commit further capital to poor countries.

CDC’s fund managers (number) Third party capital invested Third party capital raised alongside CDC (US$m) by Actis (US$m)

8,355 21,151 1,692 2,869 59 6,021 42 526 137 3,940 453 13 26 2,835 61 3 2004 2005 2006 2007 2008 2005 2006 2007 2008 Total 2004 2005 2006 2007 2008 Total

CDC capital invested by Total capital committed to CDC’s Total capital committed to Actis’ fund managers (%) fund managers 2004-08 (US$m) funds (US$m)

3 1 Actis 49% 3 1 CDC 7,137 3 1 CDC 3,361 2 Aureos 6% 2 Other DFIs 1,433 2 Other DFIs 80 3 57 other fund 3 Commercial 3 Commercial managers 45% investors 19,718 investors 2,789 1 2

2 1 1 2 Chapter 2 – CDC’s evolution 17

phase. ACA played a major part in MTN’s Key data African Capital Alliance decision to come to Nigeria, as MTN Emergence of a new, would not have expanded operations US$52m committed by CDC to 3 funds to Nigeria without reliable local partners. 16 portfolio companies successful West African Eight of the ten portfolio companies in 9,300 jobs supported by portfolio fund manager supported ACA’s first fund demonstrated by CDC employment growth, creating a total of companies in ACA’s first 2 funds 6,700 new jobs for Nigerians. MTN also US$120m taxes paid by created an estimated 20,000 new indirect 9 companies that reported data 2008 African Capital Alliance (ACA) was the first jobs. Nine out of the ten portfolio private equity fund manager in Nigeria. companies in ACA’s first fund have shown investing in oil and gas, particularly given CDC invested US$5m in ACA’s first fund an increase in turnover. Six of the portfolio the challenging security situation in the in 1999. Along with commitments from companies have demonstrated growth in Niger delta. CDC provided considerable the International Finance Corporation profitability. ACA has thus far successfully support to ACA in its efforts to improve (IFC) and the Dutch development finance sold most of the ten investments in its first upon its ESG management systems. institution (DFI) FMO, CDC’s investment fund, with proceeds returned to CDC and in ACA’s first fund represented the only its other investors. As always, CDC has With its third fund, which is expected capital raised from investors outside reinvested these proceeds into new, to be substantially larger than its Nigeria following the end of the military promising funds in poor countries. predecessor fund, ACA will continue to dictatorship and the transition to play an important role in the strengthening democratic rule. CDC decided to back Based on ACA’s successful track record of capital markets in Nigeria and ACA as a way of developing contacts with its first fund, CDC invested US$17m throughout West Africa. in Nigeria and insights into a country in with ACA’s successor fund in 2006. ACA’s which CDC had no recent track record track record enabled the fund manager to Over the ten years of CDC’s engagement of investing. Ten years later, Nigeria is raise a total of US$100m for its second with ACA, the firm has grown from its currently CDC’s second largest fund, half of which was from commercial founder Okechukwu Enelamah and his investment destination with a total of investors. CDC was the largest single core team to around 20 investment £111m in portfolio value invested by investor in ACA’s second fund and played professionals and an associated range multiple different fund managers in an active role in assisting ACA with of highly qualified specialist consultants. Africa’s largest low income country. fundraising. Thus far, five of nine portfolio companies in ACA’s second fund have ACA’s first fund invested a total of demonstrated growth in employment, with US$12m from CDC and other DFIs in ten a total of 1,300 new jobs created. Portfolio portfolio companies, alongside a further companies in ACA’s second fund have so US$20m invested by private Nigerian far contributed US$120m in tax revenues investors, most of which proved to be to the Nigerian government. highly successful investments. Most of the portfolio companies were in the ACA has now initiated a new focus on telecommunications sector, making a the oil and gas sector, which will play an major contribution to Nigeria’s telecom important role in promoting indigenous oil boom during the last ten years. Seven of and gas firms. ACA has substantially the portfolio companies in ACA’s first fund strengthened its management systems were SMEs. ACA’s most successful to address the environmental, social and investment was in MTN, Nigeria’s leading governance (ESG) risks involved in mobile phone operator, during its start-up

CDC’s fund managers have offices in 34 developing countries

2 or more local fund managers 1 local fund manager 18 CDC Growth for development

CDC’s evolution continued

Responsible business practices Key data1 Outsourcing Services and improved standards:

Limited, Nigeria 2 • OSL is a security outsourcing company Investment: US$235,000 Start-up security company that supplies security guards. It was a Investment period: 1999-2009 which improved standards high risk investment, especially given Sector: Industrials, commercial services and was sold at a record the difficult security situation in Nigeria. and supplies Fund manager: African Capital Alliance price • The minimum wage is strictly enforced. Employment: 5,000 Employment growth: >4,500 Outsourcing Services Limited (OSL) was • OSL’s security guards are better trained Turnover: US$34m one of the many successful investments and better paid than guards at Turnover growth:3 US$31m in African Capital Alliance’s (ACA) competitor firms. EBITDA: US$3m first fund. EBITDA growth: Start-up • The percentage of company revenues Taxes paid: US$688,000 Successful financial and economic spent on salaries at OSL is 51%, as performance: compared to an industry average of Footnotes for key data around 41%. 1 From year-end 2008, except for when stated otherwise. • ACA acquired a 40% stake in OSL 2 US$235,000 invested by African Capital Alliance’s first fund, Capital Alliance Private Equity 1. CDC’s investment in in 1999, the other 60% being held by Guards are provided with medical Capital Alliance Private Equity 1 is US$5m; total fund size an international partner, Gray Security insurance and life insurance. OSL’s is US$35m. Services of South Africa. Gray Security high standards have enabled OSL to 3 2002-2008. Services was subsequently acquired charge its corporate clients a premium for by Securicor, which then merged with its security services. The better training, Group 4 to become G4S. higher wages and strong employee benefits packages have raised the • OSL has been a great commercial benchmark for the Nigerian security success. The company has grown from services industry as a whole. a start-up to become the leading firm in the outsourced security services industry in Nigeria.

• G4S bought ACA’s stake in OSL for US$10m in 2009. This sale realised an IRR of 58% over 10 years. This is one of the most successful exits to date from CDC’s fund-of-fund’s portfolio. Promoting responsible investment and business practices

Chapter

Responsible investment practices have always been core to CDC’s mandate. No longer a direct investor, CDC now promotes responsible investment practices through its 59 fund managers who, in turn, ensure that their portfolio companies improve upon their business practices from environmental, social and governance (ESG) perspectives during their investment period. In 2008, CDC updated its standards for responsible investment and business practices with a new Investment Code, which is included as an appendix to this report. 3 20 CDC Growth for development

Chapter 3 – Promoting responsible investment and business practices

CDC’s new Investment Code on environmental, social and governance (ESG) matters was launched in 2008.

CDC’s work to promote responsible governance measures prior to Assessing risks and addressing investment and business practices their investments, and implement issues over time improvements over the investment period Poor management by businesses of with a strong focus on environmental and CDC works with its fund managers to the environment, social matters and social matters. In the medium to long ensure that they pay sufficient attention to governance (ESG) is common in the term, CDC has ample examples of how ESG matters throughout their investment developing markets of low income responsible business practices can attract activities. As CDC’s fund managers are countries. Weak laws ineffectively international customers, reduce risks, long term investors, they are well enforced, a culture of corruption and lax build stronger brands, and often also equipped to bring about improvements in corporate governance standards mean reduce costs. The promotion of good corporate ESG practices over time. This is that businesses need not necessarily be business practices in poor countries by particularly important for fund managers driven to protect their environment from CDC and its fund managers is a core that invest in sectors with significant risks. the external effects of their activities nor aspect of how CDC’s investments Responsible investors like CDC and their workers or affected communities contribute to development. CDC’s fund managers have a key role from unacceptable risks. investing in high-risk sectors to bring Investing through fund managers makes about better business practices in CDC links its investment capital to a it more of a challenge for CDC to ensure portfolio companies which helps to commitment by its fund managers and good business practices, as CDC is now promote better standards overall in their portfolio companies to adhere to one level removed from portfolio poor countries. minimum requirements for responsible companies. However, as CDC’s fund business practices with respect to ESG managers also invest large amounts Industries with particularly high ESG and to work over time to improve of capital from other sources, their risks include: performance towards international investments reach a larger number of standards. With this commitment, CDC companies and they can have a wider • industries with high risks of pollution, and its fund managers seek to ensure influence on responsible business such as large factories, oil and gas minimum standards and to build practices than would be possible solely extraction and refineries; awareness among portfolio companies with capital from CDC. A core objective • activities which affect the natural of how proper attention to reduce waste, for CDC is to turn the challenge of environment, for example mining, pollution and energy consumption as well promoting responsible business practices large-scale agribusiness, forestry, and as adequate safeguards for the wellbeing through an intermediated investment construction of new infrastructure; of employees and the communities model into an opportunity for wider • resource intensive industries, including affected by business activities can be key reaching development effects. cement plants and aluminium smelters; levers for business success. CDC’s fund managers usually structure good

CDC requires its fund managers to consider ESG matters in all of their investment activities

Fundraising – Investment Due diligence Investment Exit CDC investment > >>>management • Formal agreement with • Assess new • Where fund managers • Encourage managers of • Consider ESG matters CDC to commit to the investments on ESG have effective control portfolio companies to: at divestment: Investment Code – by matters: or significant influence, > adopt and implement > any ESG issues with CDC’s standard side > sector risks procure investment sound ESG policies potential buyers? letter or equivalent > issues or opportunities undertaking from > work towards > will sound ESG • Investment strategy to add value portfolio companies continuous practices continue in line with CDC’s > quality of investee in line with CDC’s improvements under new owners? exclusion list company ESG Investment Code • Monitor portfolio • Awareness of ESG management • Assist portfolio companies risks and opportunities systems companies to develop performance on ESG and how portfolio • Give new investments action plans to address and progress towards companies should a risk rating on ESG any ESG issues action plans for address these, e.g. matters to determine identified during due improvements if investment strategy the appropriate level diligence, with • If ESG issues arise, includes high risk of management and appropriate targets assist portfolio sectors like oil and gas, monitoring and timetable for companies to address mining, or large scale improvements them in a timely manner agribusiness • Report annually to CDC • Awareness of country/ • Monitor and record any regional ESG risks serious ESG incidents in portfolio companies and inform CDC Chapter 3 – Promoting responsible investment and business practices 21

• businesses which use low skilled Managing ESG matters throughout CDC’s new Investment Code on ESG workers such as textile production, the investment cycle mining, agribusiness and forestry CDC’s new Investment Code was in countries with weak employment CDC requires its fund managers to launched in 2008. It can be found on legislation; have ESG management systems that CDC’s website and as an appendix to • businesses which involve workers are suitable for the level of risk of the this report. It sets out CDC’s principles, handling hazardous substances, companies in which they invest. objectives, policies and management for example mining, agribusiness This involves conducting thorough systems for responsible investment with and chemical factories; and environmental and social impact respect to ESG. The Investment Code • businesses which can pose health and assessments before CDC’s fund replaced and updated CDC’s previous safety dangers for consumers, such as managers invest in high risk companies in Business Principles, which had been pharmaceuticals and food producers. order to identify risks and current issues, used in a similar way, and incorporated often with the assistance of specialised developments in international good Environmental and social risks are technical advisors. Such technical practice over the last four years. CDC’s typically lower for investments in financial advisors need to be experienced in the Investment Code includes an exclusion institutions, media, information and particular high risk sector that a fund list, which specifies businesses and communications technologies or retail. manager considers investing in, as well activities in which CDC will not invest as knowledgeable about the local country for ethical reasons. From the business integrity and corporate and regional situation. Experience in governance perspectives, risks and identifying areas for improvements in The core principle of CDC’s Investment opportunities for improvements could cut corporate governance is usually part Code is that businesses in which CDC’s across most sectors. Corrupt practices of a fund manager’s core skills. Before or capital is invested should work on are particularly common in sectors that shortly after any new investment, CDC’s improving their practices on ESG in line involve large contracts, not least with fund managers should design action with international good practices over the governments. Improvements in corporate plans for appropriate improvements over duration of the investment by CDC’s fund governance are often called for in the investment period. Working with the managers. While business standards may companies that have grown quickly whilst local fund managers, CDC contributes be weak at the time investments are still being managed by the founder or an to building capacity for responsible made, CDC’s fund managers work with extended family without an independent investment practices and sound ESG their investee companies to improve board and key professional functions management in poor countries. business operations and practices from such as a qualified Chief Financial the ESG perspective during the Officer (CFO). investment period.

Rating ESG risks – examples of how to categorise companies from the environmental perspective

Risk category Description of category Examples

Category A/ Significant adverse environmental • Large dams and reservoirs High Risk impacts that are diverse, • Large scale agribusiness irreversible or unprecedented • Large scale forestry • Oil and gas • Mining • Hazardous waste disposal

Category B/ Potential adverse environmental • Small scale agribusiness Medium Risk impacts are less severe than • General manufacturing those of Category A. Mitigating • Textile plants measures can be designed • Telecommunications more readily • Food and beverages • Water supply and sanitation • Aquaculture and mariculture

Category C/ Minimal or no adverse • Advisory assignments Low Risk environmental impacts • Mortgage securitisation • Life insurance • Media • Information technology 22 CDC Growth for development

Promoting responsible investment and business practices continued

CDC’s fund managers are required to convergence as to what is understood Principles of Corporate Governance, and commit to implement CDC’s Investment as responsible business management of several other key conventions that have Code, and to use it as a reference ESG matters in emerging markets over established relevant international norms standard for their investments. the last few years. The IFC’s Policy and and standards to protect the environment, Performance of CDC’s fund managers Performance Standards on Social and ensure decent, fair and non-discriminatory and portfolio companies against the Environmental Sustainability and the labour and working conditions, safeguard Investment Code is one of the key associated IFC/World Bank adequate health and safety standards components of CDC’s broader framework Environmental, Health and Safety (EHS) at work, ensure business integrity and for measuring the development effects Guidelines have been adopted as the promote good corporate governance. of its investments, as further described standard for direct investments by most in chapter four. During evaluations, CDC bilateral DFIs, including most of the visits a representative sample of portfolio European DFIs, as well as by the Equator companies, with a focus on companies Banks.16 CDC’s Investment Code in high risk industries, to verify sound incorporates the IFC’s Performance corporate ESG practices. In 2009, a Standards and EHS Guidelines as the number of evaluations will be done by reference standards for CDC’s fund independent consultants. CDC’s own managers to use for investments in processes to implement its Investment high-risk sectors. The industry specific Code will also be subject to external EHS Guidelines address how to mitigate verifications. such risks.

CDC’s new Investment Code was CDC’s Investment Code also builds on developed by CDC in close collaboration and aligns with other international with its shareholder, the Department for conventions and good practice standards International Development (DFID), and on ESG. It incorporates the core labour as a result of extensive consultations with standards of the International Labour other development finance institutions Organisation (ILO), the Extractive (DFIs), notably the International Finance Industries Transparency Initiative (EITI), Corporation (IFC), and the European the United Nations’ Framework development finance institutions (EDFIs). Convention on Climate Change and its There has been considerable associated Kyoto Protocol, the OECD

• CDC provides its fund managers with a Toolkit on how to add value to portfolio companies

THROUGH EFFECTIVE ENVIRONMENTAL, from the ESG perspectives SOCIAL AND GOVERNANCE ANALYSIS TOOLKIT FOR FUND MANAGERS • CDC will update its ESG Toolkit to align with the new Investment Code • The updated Toolkit will include new sections on: > how different types of businesses can assess risks and opportunities from climate change > how to improve upon business practices from the gender perspective • See www.cdcgroup.com

In association with Forum for the Future Chapter 3 – Promoting responsible investment and business practices 23

of scrap metal to scrap metal dealers. Key data1 Athi River Steel Plant, Kenya Aureos made a follow-on investment in Providing income for the Athi River Steel through its East Africa Investment:2 US$7m Fund, where CDC was also a founding Investment period: 1998-present poorest and improving investor in 2006. environmental management Sector: Manufacturing of scrap steel recycling The Athi River Steel plant is located in the Fund manager: Aureos Mavoko township 30 kilometres east of Employment: 900 Nairobi. It provides jobs in a poor region Employment growth:3 280 While still a poor country, Kenya is an where there are few employment Turnover: US$16m emerging engine for economic growth opportunities outside agriculture. Athi Turnover growth:3 US$6m in East Africa. Over 40% of the Kenyan River Steel employs 900 people, many of EBITDA: US$3m population of 35 million live below the whom had received no formal training or 3 US$2 per day poverty line. In 2008, Kenya EBITDA growth: US$0.1m education prior to joining. The company faced a number of challenges. Lower than provides comprehensive training to all Footnotes for key data average rainfalls negatively impacted the staff, providing them with new valuable 1 From year-end 2008, except for when stated otherwise. agriculture sector, lowering yields and 2 US$7m invested by Aureos. CDC’s investment in Aureos skills which enhance their future export revenues. Contested general East Africa Fund is US$8m; total fund size is US$40m. opportunities. 3 2006-2008. elections results at the end of 2007 led to bouts of violence during which vital The establishment of the plant stimulated infrastructure was damaged and 300,000 economic activity in the region more This will allow Athi River Steel to mitigate people were displaced. The tensions led broadly, with increasing demand for health and safety risks as well as to to a fall in economic activity, with accommodation, transport, health demonstrate leadership in environmental decreases in production and a decline in services and food. For example, a number and social management compared to foreign investment. The 2008 economic of local women have established informal its competitors. growth rate was the lowest since 2004. businesses providing traditional food to Athi River Steel employees. Athi River Steel is expected to continue Established in 1996, Athi River Steel is a to grow in turnover and profitability. steel smelting company producing hot The process of smelting scrap metal can This growth will contribute to local rolled steel products from recycled scrap be highly polluting, emitting smoke and employment and economic growth in metals. Its products include fasteners, particles from the furnaces and producing an environmentally sound and socially steel springs building and structural slag as a by-product of melting scrap responsible manner. materials. When CDC’s fund manager metals in the furnaces. Athi River Steel, Aureos invested in Athi River Steel in 1998 with the assistance of Aureos, has through the Acacia fund in which CDC introduced a number of measures to was a founding investor, the Kenyan steel reduce the company’s adverse industry was still in its infancy. 50% of the environmental impact. Improvements steel used in Kenya was imported at high, undertaken and underway include international prices. The little scrap metal construction of a higher smoke stack with that was collected was exported at very an air pollution control device to manage low prices. Athi River Steel’s business and reduce emissions from the plant. model of sourcing local scrap metals for high quality new steel products proved With furnaces and heavy machinery a success with Kenyan steel purchasers. onsite, health and safety standards are It also provided important income also an important consideration for Athi generation opportunities for an emerging River Steel. In order to improve the group of scrap metal collection general health and safety standards at the companies. By 2004, there were over plant, the company has engaged a health 1,000 scrap metal companies registered and safety specialist and is committed to with the Kenyan scrap dealers bringing in best practice on health and association. Athi River Steel estimates safety risk management and ensuring that that there are over 150,000 people in operations meet international standards. Kenya who receive income from sales 24 CDC Growth for development

Promoting responsible investment and business practices continued

Although Tanzania has no formal codified Key data1 Shelys Pharmaceuticals, environmental requirements for the Tanzania pharmaceutical sector, Shelys has worked Investment:2 US$4m to ensure that World Health Organisation Investment period: 2003-2008 Growing a successful (WHO) standards on effluent discharge are pharmaceutical business met. With Aureos’ support, Shelys has Investment sold: 2008 through improvements in made the following improvements to its Sector: Pharmaceuticals operations: Fund manager: Aureos drug safety Employment: 550 • Separate drainage facilities for waste Employment growth:3 Malaria is a major killer in developing water to ensure safe effluent discharge. Reduction of 160 temporary workers while countries. In 2006, Tanzania reported permanent employment has risen by 80. 11.5 million cases of malaria and many • Reduced dust and particle emissions Turnover: US$24m more cases go unreported. Malaria is by introducing a high efficiency Turnover growth:3 –US$2m attributed to inhibiting economic growth particulate air filter which meets EBITDA: US$3m by as much as 1.3% per annum in European Union standards. EBITDA growth:3 –US$1m countries where infection rates are high.17

Production standards at Shelys are in the Footnotes for key data Shelys is a Tanzanian pharmaceutical process of being raised to WHO good 1 The data is from 2006, except for when stated otherwise. manufacturer, specialising in over-the- manufacturing practice (GMP) standards. 2 US$4m invested by Aureos. CDC investment in Aureos East Africa Fund was US$8m; total fund size is US$40m. counter products. The company While WHO GMP is not required for drugs 3 2004-2006. benefited from a five year investment from sold in Tanzania, improving production CDC’s fund manager Aureos which was standards has provided access for Shelys successfully exited in 2008. Shelys to markets in eight other countries across produces a range of pharmaceutical Central and Eastern Africa. products including generic anti-malarial drugs. Aureos assisted Shelys in acquiring With guidance from Aureos, Shelys the Kenyan company Beta Healthcare, introduced tighter financial controls and significantly growing its distribution improved corporate governance with the footprint in East Africa. In addition, with creation of new board committees for Aureos’ support, Shelys constructed a oversight. new state of the art manufacturing plant to replace its facility in Tanzania. Shelys leading position in East Africa, coupled with improvements in Shelys employs 550 people and complies manufacturing standards and improved with all local labour legislation as well as corporate governance, persuaded Aspen the International Labour Organisation’s Pharmacare, sub-Saharan Africa’s largest fundamental conventions. Basic wages pharmaceutical manufacturer to acquire a for all staff exceed the national minimum majority stake in Shelys as part of its and staff receive uniforms, housing and African expansion strategy. This is a clear transport allowances as well as one free example of how ESG improvements go meal per day. hand in hand with the business and investment case. Measuring the development effects of CDC’s investments

Economic growth and poverty alleviation result from multiple factors including capital for private sector Chapter development. CDC measures the contributions of its investments towards these overarching development goals along four parameters: financial performance, economic performance, ESG performance and private sector development, which collectively make up the development outcome of a fund investment. CDC also assesses its own effectiveness. In 2008, CDC strengthened its monitoring and evaluation system and conducted evaluations of 12 funds, covering 119 portfolio companies in sub-Saharan Africa and Asia. The results of these evaluations were promising, while also highlighting areas for improvements. 26 CDC Growth for development

Chapter 4 – Measuring the development effects of CDC’s investments

CDC strengthened its monitoring and evaluation system and completed 12 fund evaluations in 2008.

The objective of CDC’s investments is to and investing further capital beyond acquire. CDC has to be practical and address the shortage of capital available CDC’s investments and in other ways realistic about what developmental for businesses in poor countries which contribute to the development of more indicators to focus on, and to request enables them to realise their growth efficient local capital markets which consistent data from its fund managers to potential in a responsible manner, and benefit economic growth. show performance over time. The annual thereby contribute to economic growth reports received from fund managers are for the benefit of the poor. Development To assess whether its investments have complemented with more in-depth capital, however substantial, is only one such positive effects and to identify periodic evaluations to show the wider contributing factor behind economic issues if and when they occur, CDC context of CDC’s investments and their growth and poverty alleviation. CDC’s regularly monitors and periodically development value. monitoring and evaluation work aims to evaluates its fund investments. ensure that CDC’s capital is deployed in Recording positive effects as well as CDC’s new monitoring and such a way that its fund managers and issues, CDC’s monitoring and evaluation evaluation system their portfolio companies contribute to work captures lessons and improvements these overarching development goals. and enables CDC to work with its fund During 2008, CDC undertook a major managers to make sure that problems are review of its system to assess the CDC wants to see the businesses in solved and avoided for the future. The contributions of its investments to which its capital is invested expand information captured through CDC’s development. After benchmarking and improve upon their operations and monitoring and evaluation system also extensively with other development thereby generate employment, pay serves to inform the wider public about finance institutions (DFIs), CDC decided increasing amounts of taxes and CDC’s use of its capital for the benefit to adopt a monitoring and evaluation contribute to broader benefits for of poor countries. This report builds on framework which is similar but not consumers in poor countries with information collected through CDC’s identical to that used by the International increased availability of better quality monitoring and evaluation work in 2008. Finance Corporation (IFC) for goods, services and infrastructure without investments through financial damaging the environment and while As CDC now invests through 59 fund intermediaries. CDC also actively ensuring sound working conditions and managers, information about the 681 collaborates on monitoring safeguarding the interests of the local different companies of all sizes and development effects with the other communities. CDC also assesses whether spread over 74 countries in which CDC’s European Development Finance its fund managers are effective in raising capital is invested is challenging to Institutions (EDFIs).

CDC’s monitoring and evaluation system captures development effects over time

Key objectives for CDC

• Demonstrate that CDC’s investments are good for development • Use information collected as a management tool to improve Impact investment and business practices over time Outcomes • Poverty alleviation • Economic growth Outputs • Profitable and growing • Efficient capital markets businesses in poor countries Inputs • CDC’s fund managers • Jobs and tax revenues invest in commercially • Increased availability • CDC invests capital viable and responsibly of products and services with fund managers managed companies • Increased availability in poor countries of commercial finance • Third party capital in poor countries

Assessments: Prior to investments

Monitoring: Quarterly, biannual and/or annual reviews of key performance indicators: quantitative and qualitative Evaluations: Verification of existing performance information and contextual considerations by CDC and external consultants Chapter 4 – Measuring the development effects of CDC’s investments 27

CDC’s new monitoring and evaluation improve upon their practices from the CDC uses its monitoring and evaluation system is intended to be practical, environmental, social and governance framework to: simple and deliver the key information (ESG) perspective; and required by CDC for its investment • systematically record information for management and communication • private sector development – new investments; purposes, as well as for CDC’s Board indicating whether CDC’s investments • annually monitor many of the key and shareholder, the UK Department have broader private sector indicators for each of the four for International Development (DFID), development effects including performance dimensions; and for their oversight functions. increased availability of capital for • systematically evaluate all fund businesses in low income countries investments at the mid-point of their The monitoring and evaluation framework from the third party capital invested investment duration, typically five years used by CDC includes four key alongside CDC; more efficient capital after CDC’s investment, as well as at parameters to assess the overall markets; improvements to regulatory the end of the duration of each fund. development outcome for each fund environments from contributions by investment, based on the performance fund managers or portfolio companies For evaluations, CDC operates a six-scale of a fund as well as its underlying portfolio to new standards and legislations; and rating against each performance companies: increased availability of better quality parameter, ranging from excellent to goods, services and infrastructure poor. Such a six-scale rating forces a • financial performance – indicating for the benefit of local communities. judgment of performance and introduces whether investments are profitable; nuances to the performance assessment. thus returning capital to CDC for further CDC has selected a limited, core set The aggregate rating of financial investments and demonstrating to other of about 30 indicators for performance performance, economic performance, investors that profitable investments measurement for these performance ESG performance and private sector can indeed be made in emerging dimensions. Details are provided in an development makes up an overall rating markets where they are traditionally appendix to this report. for the development outcome of each reluctant to invest; fund investment. CDC also monitors and evaluates its own • economic performance – indicating the effectiveness in terms of adding value to Similarly, the aggregate rating of CDC’s extent to which investments generate the investment work of its fund managers added value and catalytic effects makes benefits for the local economy, in terms in various ways and in assisting fund up the rating for CDC’s own effectiveness. of commercially successful and growing managers to raise further amounts of Similar six-scale ratings are used for businesses that provide employment capital, thus having a catalytic effect for evaluations by the IFC and other DFIs. and generate tax revenues; increased capital flows to poor countries.

• ESG performance – indicating whether fund managers and their portfolio companies adhere to responsible investment and business practices in line with CDC’s Investment Code and whether portfolio companies over time

CDC’s monitoring and evaluation framework and indicators Development outcome Concept Performance indicators Financial • Fund managers’ ability to attract commercial • Net IRR of funds versus investment targets performance capital to poor country markets • IRR for each exit > Financial return to investors Economic • Contributions to economic growth • Employment performance > Commercially viable and growing businesses • Taxes paid that generate employment and pay taxes • EBITDA and turnover (increase over time) • SMEs and low income reach (if relevant) ESG • Responsible investment and business • ESG issues and improvements over time performance practices with respect to the environment, • Development outlays (if available) social matters and governance (ESG) • Environmental products/services (if relevant) > fund managers’ ESG management systems and the ESG performance of portfolio companies Private sector • Broader private sector development effects: • Third party capital development > More efficient capital markets • Local capacity building > Regulatory improvements • Enhancements to sectors and benefits > Benefits to customers from increased for consumers e.g., increase in telecom availability of goods, services and infrastructure penetration, new infrastructure, increased access to power and financial services CDC effectiveness Concept Catalytic effects • CDC’s direct role in bringing in other investors > focus on commercial capital Added value • CDC’s direct contributions to improve the way fund managers invest CDC’s capital, e.g.: > to shape a fund’s investment thesis or terms > to improve fund managers’ ESG management systems > to recruit or contract key technical expertise for responsible and successful investment management 28 CDC Growth for development

Measuring the development effects of CDC’s investments continued

CDC’s monitoring and evaluation CDC has used the information generated The evaluations covered: work in 2008 from its monitoring and evaluation work in 2008 to inform strategy development and In parallel with updating and improving new investment decisions. 12 funds upon its monitoring and evaluation (M&E) methodology, CDC started to make use 12 evaluation reports completed in 2008 of its new M&E system during 2008 and 7 fund managers used this year to test and improve upon The 12 evaluations completed by CDC in indicators and templates for reporting and 2008 represent more than one sixth of the evaluation purposes. Requests were sent total number of CDC’s current portfolio to CDC’s fund managers for more companies.18 In total, the funds evaluated 119 portfolio companies extensive information on non-financial represent about one tenth of CDC’s total matters, including data on employment in portfolio value. portfolio companies and taxes paid and £139m portfolio value reports on ESG matters. Most of CDC’s Five of the evaluations covered CDC’s fund managers responded to these investments in sub-Saharan Africa, requests, providing CDC with an including 54 different companies, most of 9 mid-point evaluations improved understanding of its investment them small and medium size enterprises portfolio from the development (SMEs). Six evaluations covered funds perspective. that invest in Asia, with a focus on India 3 final evaluations but also including other countries in South During 2008, CDC completed evaluations Asia, South East Asia and one fund in of 12 fund investments, covering seven China.19 One of the evaluations assessed different fund managers and 119 portfolio a global microfinance fund, which CDC’s evaluation work in companies with a total aggregate portfolio invested in 15 different microfinance 2008 covered funds value of £139m. Actis and Aureos both institutions in many countries, including investing in companies of managed more than one of the funds Bangladesh, Cambodia, India, Kenya, all sizes and in all sectors evaluated. CDC’s investment team visited Nigeria, Pakistan, the Philippines and a representative sample of the portfolio Rwanda. across sub-Saharan Africa companies included in the evaluations, and Asia with a special focus on companies that About half of the companies covered were considered to be high risk from an by the evaluations were relatively large ESG perspective. businesses where CDC fund managers have invested growth capital. About 40% of CDC will continue the work to strengthen the companies covered by the evaluations its monitoring and evaluations systems were investments by SME funds. and practices during 2009. Seven of the 20 evaluations that are planned for 2009 will be outsourced to external consultants. CDC will also continue to work with its fund managers to improve upon their reporting practices.

Portfolio companies evaluated by Portfolio companies evaluated by Regions covered by evaluations sector (number of companies) sector (portfolio value, £m) (portfolio value, £m)

Energy Energy 4 5 & utilities 3 & utilities 3 1 Sub-Saharan Africa £36m 3 2 China £13m ICT* 13 ICT* 3 3 India £87m 4 Other Asia £1m Mining 6 Mining 3 1 5 Global £2m Industry & Industry & 2 materials 30 materials 36 Agribusiness 10 Agribusiness 8 Consumer Consumer goods & goods & services 18 services 15 Regions covered by evaluations Financial Financial (number of portfolio companies) services 14 services 12

Microfinance Microfinance 15 2 4 1 Sub-Saharan Africa 54 2 China 6 Healthcare 9 Healthcare 42 3 India 38 3 4 Other Asia 21 Infrastructure 1 Infrastructure 15 * Information and communication technologies

2 1 Chapter 4 – Measuring the development effects of CDC’s investments 29

The 119 portfolio companies covered by Executive and other members of the private equity firms to place a strong the evaluations represent most sectors, management team. After review by CDC’s emphasis on ESG matters in the region. including e.g., mining, healthcare, investment committee, which in some The fund manager used in-house agribusiness, financial services and instances led to evaluation ratings being specialist staff and consultants to work energy and utilities. The single largest changed, the evaluation reports were with portfolio companies across a number of portfolio companies included submitted for approval to CDC’s board spectrum of industries, including large in the evaluations were industrial committee on best practice and factories and chemical plants, to bring businesses, followed by information development.20 about less environmentally damaging and communication technologies and practices, improvements in health and consumer goods and services. During 2009, CDC will use its findings safety standards and strengthened from the evaluations conducted during corporate governance. In two cases, The amount of capital committed by CDC 2008 to further strengthen its evaluation there were fatalities at factory sites. to the 12 funds evaluated ranged from processes and, through further The fund manager took these matters three large investments of £75m or more experience, improve upon the guidance very seriously and ensured that to four smaller commitments of less than notes used for evaluations and ensure proper investigations were undertaken. £6m. CDC’s investments ranged from an consistency in evaluation ratings. The All companies in the portfolio grew in interest of 91% in one fund to three cases evaluations that will be undertaken by terms of turnover. Ten of the 14 where CDC’s interest was below 10%. independent consultants during 2009 companies grew in terms of profitability, Most commonly, CDC’s investment will also be helpful for this purpose. as measured by EBITDA. Almost represented 20-35% of the funds. 14,000 people were employed in the Evaluation results and key findings fund’s 14 portfolio companies, which Three of the evaluations were conducted collectively paid US$67m in taxes to at the end of the duration of the funds’ The overall results from the 12 evaluations local governments during 2007. life. The final evaluations assessed the were promising. Nine of the evaluation performance of these funds and their reports were rated as overall successful • A fund manager pioneered investments portfolio companies over a nine to 11 year in terms of development outcome.21 in small and medium size enterprises period. Nine of the funds evaluated were Only one fund was rated overall as below (SMEs) in the Pacific islands where at the mid-point of their investment expectations. foreign direct investment is still period. In several cases, CDC’s uncommon. Whilst an unfavourable evaluations were performed at the time Executive summaries from a sample of economic and political environment when fund managers were raising the evaluations completed during 2008 contributed to low financial returns from successor funds. For these fund are provided below. More detailed this fund investment, CDC considered managers, the evaluations were analyses of results from the financial, its developmental impact in the region instrumental in guiding CDC’s new economic, ESG and private sector to have been important, as the eight investment decisions. development perspectives are provided investee companies within its portfolio in subsequent sections: would not have been able to sustain Members of CDC’s investment team or expand operations without the prepared the evaluation reports and made • A large growth capital fund invested investment from this fund manager. recommendations on evaluation ratings in 14 different companies across all The fund supported the creation of 650 to CDC’s investment committee. CDC’s sectors in South Asia. This fund was new jobs, and generated US$43m in investment committee for the purposes mostly invested in companies in India, tax revenues in some of the region’s of approving the ratings does not include but also pioneered private equity poorest countries, including Papua members of the team that produced the investments in Pakistan and Sri Lanka. New Guinea. report but does include CDC’s Chief The fund manager was one of the early

Summary of CDC’s evaluation ratings in 2008 Excellent Successful Satisfactory Below Unsatisfactory Poor % satisfactory expectations or better Development outcome* 0 9 2 1 0 0 92% Financial performance 2 4 4 0 2 0 83% Economic performance 2 7 2 1 0 0 92% ESG performance 1 7 4 0 0 0 100% Private sector development 3 8 1 0 0 0 100%

CDC effectiveness** 0 8 4 0 0 0 100% Added value 0 6 6 0 0 0 100% Catalytic 4 3 2 3 0 0 75%

* Development outcome is the summary, aggregate rating from the categories’ financial performance, economic performance, ESG performance and private sector development. ** CDC effectiveness is composed of a qualified assessment of whether CDC’s staff added value and/or had catalytic effects for third party capital for funds beyond its own investment capital. 30 CDC Growth for development

Measuring the development effects of CDC’s investments continued

• Another fund manager successfully CDC’s effectiveness: added value and While it is not usually possible to attribute provided growth capital for SME catalytic effects directly decisions of other investors to development for 14 companies in East invest in funds alongside CDC to CDC’s Africa as one of the first sources of In addition to evaluating the development influence, the evaluation work concluded such finance in the region. All of these outcomes of its fund investments, CDC that CDC had performed at least companies exhibited growth in turnover assessed its own effectiveness in terms satisfactorily on catalytic effects for 75% and ten grew in profitability over the of making direct contributions to the of the 12 funds evaluated. For three funds, investment period. 12 of the 14 portfolio success of its fund investments. CDC the evaluations concluded that CDC companies demonstrated employment analysed whether its employees could would have expected to perform better in growth, with a total number of 3,700 demonstrate effective work with the fund attracting other investors, resulting in a jobs supported by the fund’s capital. managers to raise further capital, or below expectation rating. For four funds, whether CDC’s staff in other ways added CDC rated its catalytic value as excellent: • One fund similarly provided successful value to the investment activities of fund these funds simply would not have growth capital for SMEs in Southern managers or the practices of their existed without CDC’s commitment. Africa. There were major improvements portfolio companies. To avoid the in practices from an ESG perspective perception of subjectivity, the evaluation during the fund manager’s investment reports had to detail accurately how and period, with the fund manager often why CDC considered itself to have added instrumental in addressing issues and value or been catalytic for fundraising. implementing improvements over time. Eight of the 12 evaluations concluded that CDC’s effectiveness was successful. • A microfinance fund demonstrated CDC rated its work with the remaining strong returns from investments in four funds as satisfactory. microfinance institutions (MFIs) and SME banks which provide financing For all of the 12 funds evaluated, CDC’s to low income populations. The assessments were able to demonstrate engagement of the fund manager with several instances of added value to its the managers of these MFIs and SME fund managers, ranging from assisting the banks was key for this success. The fund managers to design their investment fund invested in MFIs and SME banks strategy, helping fund managers improve across 15 different countries. financial reporting and valuation methodologies, or improving the way • One fund focused almost entirely on fund managers worked with their portfolio buyouts of state owned enterprises companies to improve management of in China. In this process, it increased ESG matters. CDC’s Toolkit for Fund productivity in the businesses that Managers: Adding Value on ESG was it invested in and achieved a more widely perceived as helpful. Six of the efficient allocation of capital. Though 12 evaluations concluded that CDC had investments are still at an early stage, been successful in adding value to its the portfolio companies are all fund investments in one or more ways. promising and solid. The remaining six were rated as satisfactory.

Funds evaluated by type of investee company (%)

3 1 Growth capital* 50% 2 2 SME 42% 3 Microfinance 8%

1 * Growth capital is invested in larger companies. Development highlights in 2008 Chapter

Financial performance: CDC’s unrealised portfolio valuation suffered from the global recession in 2008, similarly to most other investors. The reduction in CDC’s portfolio value, however, was far less than that of its market comparator. CDC’s fund managers were able to realise some successful exits despite the market downturn.

Economic performance: 676,000 people were employed in the 514 portfolio companies that reported employment data to CDC in 2008. US$2.2bn in tax revenues were generated by the 390 companies that reported tax data. From the 12 evaluations, 82% of the portfolio companies increased turnover, 58% increased profitability as measured by EBITDA, and 76% showed an increase in jobs.

ESG performance: Evaluation work and reports from fund managers demonstrated that many companies in developing countries experience issues from the environmental, social and/or governance perspective, and that CDC’s fund managers work 5 extensively with their portfolio companies to improve corporate practices.

Serious incidents occurred in some of CDC’s portfolio companies. CDC takes these incidents very seriously and requires its fund managers to address any contributory issues.

Private sector development: US$21.2bn in third party capital has been invested alongside CDC, mostly from commercial investors. Most of CDC’s fund managers are based in developing countries with offices in 34 countries. Many are first time fund managers. CDC’s evaluation work brought out multiple aspects of the private sector development contributions of CDC’s fund managers and their portfolio companies. 32 CDC Growth for development

Chapter 5 – Development highlights in 2008

Financial performance the comparison most commonly used for £928m CDC portfolio value emerging markets investments, the MSCI The ability of CDC’s fund managers to Emerging Markets Index which dropped generate a strong financial return on their by 55%. Over the last five years, CDC’s £436m record new investments demonstrates to other average annual total returns have been potential investors that it is worth the 18%. CDC’s total portfolio value at the investments higher perceived risk of investing in end of 2008 was £928m. emerging markets. Attracting other investors -£359m total loss to poor countries is one of the key reasons CDC made a record number of new why CDC strives to maximise the financial investments during 2008, amounting to returns from its investments. The other £436m. These new investments added to CDC annual performance reason is CDC’s ambition to grow rather CDC’s investment portfolio, which meant was -33% compared to than dilute the public capital entrusted to it that the total portfolio value at the end of to be able to continue to use the proceeds 2008 was comparable to the portfolio MSCI index of -55% from successful investments to re-invest value at the end of 2007, despite the in new companies in need of capital. unrealised losses in the value of funds held from one year to the next. Examples of companies that were sold by The annual valuation of CDC’s investment CDC’s fund managers during 2008 included: portfolio reflects current market valuations CDC’s fund managers return cash to CDC of the funds CDC invests in, which are and their other investors when they sell • Trinethra, a retail store operator in India based on the underlying valuations of the portfolio companies, typically four to – India Value Fund 2, a growth capital funds’ investments in companies. CDC, seven years after their initial investment. fund managed by India Value Fund like most other investors, suffered from A successful sale, returning capital Advisors, sold Trinethra at 4.2x its the global economic downturn during beyond the amount invested, means that investment cost, realising an internal 2008. The upheaval in emerging market a portfolio company has proven strong rate of return (IRR) of 238%. This stock exchanges and subsequent enough to attract the interest of other successful exit was the result of downgrades to company valuations investors or a buyer from another Trinethra having used the fund negatively impacted CDC’s portfolio. company, and no longer needs the manager’s investment to increase its Gross portfolio performance for CDC in financial backing from CDC’s fund network of retail outlets across southern 2008 in US$ was a loss of 33%, compared managers. Despite the financial crisis, India, adding more than 80 stores to to a gain of 57% in 2007. CDC’s total CDC’s fund managers realised some its operations. loss for 2008 was £359m, driven by strong exits during 2008, resulting in unrealised portfolio valuation losses. net realised profits of £22m. • Starcomms, Nigeria’s fourth largest Suffering from the financial crisis, CDC’s telecoms operator – Actis realised a portfolio fell by 33% while outperforming partial exit from its investment in

CDC return over 5 years versus market index (MSCI) MSCI US$ Index return versus CDC US$ portfolio return (%) 400 CDC: 160% increase over five years 350 100 300

250 0

200 –80 150 Dec Dec Dec Dec Dec MSCI Index: 26% increase over five years 2004 2005 2006 2007 2008 100 MSCI Index 2003 2004 2005 2006 2007 2008 CDC portfolio performance CDC gross portfolio performance in US$ MSCI Emerging Markets US$ Index Chapter 5 – Development highlights in 2008 33

Nigeria’s fourth largest telecom Evaluation results in 2008 duration, US$36m out of a total of operator through an initial public offering US$50m in commitments had been (IPO) on the Nigerian stock exchange at For the 12 funds evaluated by CDC in 2008, invested in portfolio companies. 2.9x investment cost, realising a 45% the current valuations of these funds were One of the funds that was rated as IRR. Since Actis invested with rated against their net IRR investment unsatisfactory on financial performance Starcomms in 2005, the operator targets at the time of CDC’s commitments. at the end of its investment duration expanded its subscriber base from accounted for most of this difference. 140,000 voice connections to 884,000 For financial performance, evaluation connections with operations in ratings were spread across five of the six Examples from CDC’s evaluation work 11 different Nigerian states. rating categories in CDC’s evaluation of fund managers working actively with framework, with two funds receiving the portfolio companies from a financial • UAC, Nigerian food services – Actis highest possible rating, excellent, and two perspective to improve the likelihood sold 11% of its 20% shareholding in funds rated as unsatisfactory. Three of the of a successful sale included: UAC, a leading food and food services evaluations were final, conducted at the company in Nigeria. Actis’ investment end of these funds’ investment duration • A Mauritian company where CDC’s in 2004 allowed UAC to expand its fast when actual returns were known. The fund fund manager decreased the debt/ food restaurants rapidly to meet a that was rated as excellent for its final equity ratio from 1.2 to 0.49 through its strong and growing demand from evaluation had a net IRR of 40%, with investment. A stronger balance sheet in Nigerian customers in an undersupplied some investments still to be sold. The two combination with a healthy growth in market. Actis exited its investment funds that were rated as unsatisfactory for turnover of the company facilitated its through the Nigerian stock exchange their final evaluations had positive net IRR listing on the Mauritian stock exchange, at 4.5x investment cost, realising an IRR returns while substantially lower than their and reduced the company’s of 56%. investment targets. dependence on debt financing.

• Shunda, a Chinese manufacturer of The challenge of rating the financial • One of CDC’s fund managers led a silicon wafers for solar power cells performance of funds at the mid-point of successful turnaround initiative for an – Actis exited its investment in Shunda their investment duration was recognised, aviation company in the Pacific islands, through an IPO on the Chinese stock as few exits have taken place at this assisting management with strategy exchange at 3.1x investment cost and stage. The mid-point evaluation ratings formulation and implementation to realised an IRR of 138%. During the were based on CDC’s current valuation of achieve a reversal of previously period of Actis’ investment, Shunda these funds. Most mid-point evaluations negative results. The fund manager expanded rapidly in response to the were rated as either satisfactory or acted as de facto CFO for the company growing demand for clean energy from successful on financial performance. during this turnaround process, solar power to become one of China’s The only fund that was rated as excellent undertook a customer-by-customer top four companies in this sector. for a mid-point evaluation had one study of margins earned and revised realised exit with a net IRR above 200%. budgets with reduced costs. The • Industrial Development Finance company became profitable in late Company (IDFC) an Indian financial Out of the total of US$2bn committed 2006. CDC’s fund manager envisages institution – IDFC was established to by all investors to the 12 funds that were a successful exit in the near future. catalyse commercial funding for covered by CDC’s evaluation work in infrastructure projects. Actis sold its 2008, US$1.3bn had been invested in share of IDFC after a nine-year holding portfolio companies at the time of the period, returning a cash multiple evaluations. For the three funds that were of 11.2x with an IRR of 30%. evaluated at the end of their investment

Portfolio value over 5 years (£m) Financial performance 2008 2007 £m £m evaluation results 2008 (%) 1184 Portfolio 938 1 Excellent 17%, 2 funds 937 1125 4 at start of year 1,184 1,125 928 2 Successful 33%, 4 funds 1 3 Satisfactory 33%, 4 funds New investments 436 412 3 4 Unsatisfactory 17%, 2 funds Realisations (245) (576) Unrealised gains (447) 223

2004 2005 2006 2007 2008 Portfolio 2 at end of year 928 1,184

Five funds above investment target in terms of net IRR; one within range; six funds below target 34 CDC Growth for development

Development highlights in 2008 continued

Economic performance 95,000 of the jobs supported by CDC’s capital were in 190 companies in sub- 681 portfolio companies CDC seeks to assess the wider benefits Saharan Africa. For this region, CDC from the companies supported by its received employment data from 70% 676,000 people employed capital to the economies where they of all of its portfolio companies in 2008. operate and to the people working for CDC, through its fund investments, is a in the 514 companies that them. In some of the companies where relatively smaller shareholder in Asian reported data3 CDC’s capital is invested, CDC’s fund companies compared to companies in managers are large shareholders, and sub-Saharan Africa. In North Africa, 19 thus a major financial supporter to of the companies supported by CDC’s US$2.2bn in tax revenues maintain or create jobs and generate tax capital employ 15,000 people. This generated from the revenues. In other companies, CDC’s fund represents 70% of all companies in the 390 companies that managers are smaller shareholders. CDC’s region in which fund managers have 4 interest in the funds where its capital is invested CDC’s capital. 20,000 people are reported data invested also varies. Direct attribution of employed in the 24 portfolio companies in employment maintained or created or tax Latin America that reported employment revenues generated to CDC’s investments data to CDC in 2008, representing slightly 32% of portfolio companies is therefore not appropriate. Nevertheless, more than half of CDC’s portfolio in SME funds or micro- as the employment and tax data reported companies in that region. to CDC in 2008 comes from a large finance funds* sample of CDC’s portfolio companies, it is In terms of sectors, the largest absolute * By number of portfolio companies or microfinance institutions. an important indicator of the number of number of jobs supported by CDC’s people in poor countries that sustain capital was in the consumer goods and Employment intensive industries, like a livelihood with financial backing from services sector, with 211,000 people mining and agribusiness, often provide CDC and the amount of tax revenues that employed in the 90 companies which the only jobs available in remote locations benefit local governments from companies reported employment data to CDC in 2008. and make important contributions to where CDC’s capital is invested. Industry and materials23 was the second poverty alleviation. Industries which largest sector by number of people require higher skilled workers can Jobs supported by CDC’s capital employed, with more than 106,000 jobs strengthen capacities through training and supported by CDC’s capital in the 101 on the job learning. Through improved data 676,000 people were employed in CDC’s companies in this sector which reported collection during 2008, CDC was pleased 514 portfolio companies that reported data. In terms of average number of to learn that companies supported by its employment data in 2008. This represents employees per company, the mining and capital employ a larger number of persons 75% of the total number of companies agribusiness sectors were by far the than previously estimated. CDC will where CDC’s capital is invested. It is largest employers, with 65,000 jobs continue to monitor employment data commonly estimated that each worker supported by the 21 mining companies with during 2009, as the global recession can supports the livelihood of about four investments from CDC and 67,000 jobs be expected to continue to take a toll on 22 family members. supported by the 23 agribusiness jobs, and will continue to make its capital companies where CDC’s capital is invested available through its fund managers to The bulk of the total number of jobs and that reported employment data to support businesses that struggle through supported by CDC’s capital were in Asia, CDC in 2008. On average, 3,000 jobs these difficult times. with 546,000 people employed in 281 are supported by each of CDC’s portfolio portfolio companies. This represented companies in mining and agribusiness. a full 80% of all employment numbers CDC considers jobs across all industries reported to CDC, and covered 80% of to be important for development. all of CDC’s portfolio companies in Asia.

Employment by industry sector Taxes paid by industry sector (US$m) Employment by region

Energy Energy & utilities 28/44 20/44 10,000 & utilities 375 1 Sub-Saharan Africa 4 5 6 95,000 (90/261) 1 ICT 58,000 42/56 ICT 342 38/56 2 China 176,000 (77/93) 3 India 179,000 (118/144) Mining 21/29 Mining 19/29 4 Other Asia 191,000 (86/111) 65,000 350 5 Latin America 20,000 (24/45) Industry & 101/120 Industry & 91/120 6 North Africa 15,000 (19/27) materials 106,000 materials 244 3 2 (number of companies reporting Agribusiness 67,000 23/33 Agribusiness 19/33 data/number of total CDC portfolio 179 companies) Consumer Consumer goods & 90/119 goods & 84/119 services 211,000 services 234 Financial 112/156 Financial 46/156 services 74,000 services 280 Taxes paid by region (US$m)

Microfinance 42/48 Microfinance 24/48 27,000 25 6 5 1 Sub-Saharan Africa Healthcare 42,000 22/26 Healthcare 19/26 596 (100/261) 83 2 China 514 (70/93) 3 India 282 (108/144) Infrastructure 28/42 Infrastructure 25/42 4 14,000 123 1 4 Other Asia 440 (78/111) 5 Latin America 400 (22/45) Cleaner 5/8 Cleaner 5/8 6 North Africa 10 (12/27) technologies 2,200 technologies 4  Number of companies reporting data  Number of companies reporting data 3 (number of companies reporting  Number of total CDC portfolio companies in sector  Number of total CDC portfolio companies in sector 2 data/number of total CDC portfolio companies) Chapter 5 – Development highlights in 2008 35

Tax revenues generated from Evaluation results in 2008 Seven of the funds evaluated were rated companies supported by CDC’s capital as successful in terms of economic 30,000 new jobs created* performance. Two were rated as US$2.2bn in annual taxes was paid by excellent and only one was rated as CDC’s 390 portfolio companies that below expectations. The 85 companies reported tax data in 2008. This 146,000 jobs supported evaluated for which employment data was represented close to 60% of all available supported a total of 146,000 companies where CDC’s capital is jobs. 76% of the 85 companies for invested. The tax data mostly reflected Only 750 jobs lost which data on employment creation was taxes paid in 2007, while in some available showed an increase in jobs instances taxes payable for 2008 over the funds’ investment period. This was reported. 21% net increase in jobs* represented 30,000 jobs created in 65 companies. Only seven companies The largest share of tax revenues was 76% of portfolio companies* showed a decrease in the number of paid to governments in Asia, with employees, with the loss of 750 jobs. US$1.2bn in taxes paid by CDC’s 256 showed an increase in jobs The net increase in employment in the portfolio companies in the region that companies covered by CDC’s evaluations reported such data, representing 70% was 21%. of CDC’s Asian portfolio companies. Some 58% of portfolio companies US$600m in taxes was paid by CDC’s increased EBITDA** For tax data, some companies reported 100 portfolio companies in sub-Saharan numbers from the last year with Africa that reported tax data, representing information available whilst others almost 40% of CDC’s African portfolio 82% of portfolio companies supplied information for the entire companies. US$10m in tax revenues was increased turnover*** investment period. Tax data was available generated by 12 of CDC’s portfolio from 80% of the companies covered by companies in North Africa that reported the evaluations. From the 37 companies tax data, representing 40% of the total From the evaluation work in 2008, CDC that reported tax data only for the last number of companies where CDC’s gained more in-depth information about year, US$405m in taxes was generated for capital is invested in that region. Almost the economic benefits and, in some local governments. A further US$150m US$400m in tax revenues were reported cases, losses from the companies where in taxes was paid by the 56 companies from CDC’s 22 portfolio companies in CDC’s capital is invested. To evaluate a that reported tax data for the entire Latin America which reported such data, fund’s economic performance, CDC investment period. representing 50% of the total number of assessed whether jobs had been created companies in the region with investments or lost, the amount of tax revenues 82% of the 96 companies covered by the from CDC. generated for local governments, and evaluations for which data was available growth in turnover and profitability in demonstrated growth in turnover during Through tax revenues generated from terms of EBITDA24 from portfolio the investment period. The average companies where CDC’s capital is companies. Special consideration was magnitude of this growth in turnover invested, governments in developing given to small and medium size was US$27m per company. countries have a sustainable local source enterprises (SMEs) that for reasons of size of public finance as opposed to the direct would have smaller absolute increases to An impressive 86% of the 97 companies budget support or programme grant show. Special consideration was also for which data on profitability was finance received from donors. Growing given to funds or investee companies that available showed positive EBITDA.24 and new businesses are the long term focused specifically on disadvantaged 58% had seen an increase in profits vehicle for developing countries to lift groups, such as microfinance for the over the investment period. their populations out of poverty. rural poor. * Data from 85 companies ** Data from 97 companies *** Data from 96 companies

The largest employers The largest tax payers Economic performance evaluation results 2008 (%) Among CDC’s portfolio companies, the The largest tax payers supported by CDC’s largest numbers of employees are all in capital are spread over different regions: 4 1 Excellent 17%, 2 funds Asia, representing the following sectors: 3 2 Successful 58%, 7 funds 1 3 Satisfactory 17%, 2 funds Jobs Region/ Business sector 4 Below expectations 8%, 1 fund Country Taxes Region/ Business sector 2 44,300 Asia Mining (US$) Country 43,000 China Agribusiness 310m Asia Mining 38,500 India Industry and 250m Latin Energy materials America and utilities 20,000 China Healthcare 160m China Agribusiness 20,000 India ICT 120m Sub- ICT Saharan Africa 60m China ICT 36 CDC Growth for development

Development highlights in 2008 continued

ESG performance Evaluation results 2008 At the time when the evaluations were conducted, the ESG management In 2008, CDC intensified its work prior 71% of portfolio companies systems of the portfolio companies to making commitments to new funds covered had been improved to a point to ensure that fund managers have the had ESG issues at investment where 70% of companies were proper management systems to address considered to have high quality ESG environmental, social and governance management systems. 27% of the (ESG) risks and to help portfolio 86% of portfolio companies portfolio companies were considered companies realise improvements during made improvements on to have ESG management systems their investment duration as stipulated by ESG practices during the of satisfactory quality and 3% were CDC’s new Investment Code. CDC also still considered to have poor ESG worked with its fund managers to promote investment period management systems. better annual reporting on ESG matters. CDC received a much larger number of All of CDC’s 12 evaluations concluded 71% of the 99 portfolio companies that ESG reports in 2008 than in prior years that funds were at a satisfactory level or were assessed on ESG performance had although reporting is still not better on ESG performance. CDC faced some type of issue from an ESG comprehensive. CDC will continue to assessed how fund managers had worked perspective before the fund managers’ promote good ESG reporting practices with their portfolio companies to identify investment or during the investment during 2009. This can be a particular ESG risks and issues at the time of period. Some companies had faced challenge for funds where CDC is a small investment, and to bring about improved issues in more than one area: investor among commercial investors. ESG practices during the investment period. One of the evaluations was rated • 31% of the companies needed During 2008, CDC’s investment staff and as excellent, the highest category, from improvements in environmental specialist ESG advisor made a number the ESG perspective. The fund manager management; of visits to fund managers and their in question had been instrumental in • 39% of the companies had experienced portfolio companies for the purpose of improving ESG practices throughout issues from the social perspective, verifying how high risk assets were being its portfolio of 19 Indian companies, mostly in terms of inadequate health managed from an ESG perspective. CDC including several large companies in high and safety standards, but also other concluded that most of its fund managers risk sectors such as mining and provision matters related to labour and working are managing ESG matters satisfactorily, of security services, one large scale ship conditions or other social matters; and whilst some of them need to put further construction company with remotely • 39% of the companies had reasons to efforts into upgrading their ESG located workers, and a start up improve corporate governance. management systems. CDC will continue pharmaceutical company, which has to work with fund managers and their grown to become a leading generic 86% of the 99 portfolio companies that investee companies on ESG matters supplier for U.S. and European were assessed on ESG performance during 2009. CDC also plans to update pharmaceutical companies by meeting had demonstrated improvements in its Toolkit on ESG for Fund Managers to the highest international standards for ESG practices: reflect the new Investment Code and to drug production. introduce two new chapters on how • 33% had demonstrated improvements to manage climate change risks and All seven fund managers covered by in environmental management; opportunities and how businesses can CDC’s evaluation work were considered • 39% showed improved practices from improve upon their practices from the to have satisfactory or high quality ESG the social perspective; and gender perspective. management systems for their • an impressive 63% had undertaken investment activities. improvements in corporate governance.

ESG performance evaluation Ratings of portfolio companies Ratings of fund managers results 2008 (%) ESG management systems (%) ESG management systems (%)

1 Excellent 8%, 1 fund 1 High 70% 1 High 67% 3 1 2 3 2 2 Successful 59%, 7 funds 2 Satisfactory 27% 2 Satisfactory 33% 3 Satisfactory 33%, 4 funds 3 Poor 3%

1 1 2 1 Chapter 5 – Development highlights in 2008 37

Often, CDC’s fund managers were • India: An Indian producer of concrete • Gambia: A bank in the Gambia uses instrumental in initiating and implementing lacked sensitivity to environmental solar energy cells to power its customer such improvements in portfolio matters prior to the investment by service kiosks throughout the country. companies’ ESG practices. CDC’s fund manager. The fund manager worked with company • Mongolia: A bank in Mongolia received Examples of ESG issues and management to transform the plant’s an award for a project to finance a blind improvements covered by CDC’s environmental practices, including the people’s labour training factory which evaluation work are provided below: introduction of sprinklers to reduce dust, recycles cotton bags. planting of trees and grass, catchment Environmental management, and recycling of water, and treatment • India: An Indian manufacturer of high environmental products and of water before release. quality non-ferrous metals sources its clean technologies: products from recycled zinc from • Nigeria: Whilst one fund manager different industries, rather than new zinc • India: An Indian producer of automotive had not performed an environmental mining. It has introduced a new process lighting in CDC’s investment portfolio impact assessment at the time of its for chemical and physical purification of also produces compact fluorescent investment in a Nigerian materials recovered zinc, which would otherwise lamps, which use up to 90% less company, the fund manager most likely have been discarded energy than regular lamps. The subsequently assessed the quality of without recycling. It has an effluent company is looking to promote the use air and waste water, which led to the treatment plan for liquid wastes and of these less environmentally damaging installation of new extractor fans and strictly adheres to regulations for lamps by securing government new roof ventilation to improve air solid effluent. contracts for lighting rural villages. The quality in the factory. firm is also looking into how it could • Fiji: One portfolio company in Fiji benefit from carbon credits. Wastage • Microfinance: A microfinance fund capitalised on the environmentally has been substantially reduced. The manager had invested in several friendly use of senile (i.e. no longer operations director of this company financial institutions which in turn producing) palms. The company started commented to CDC that less wastage financed less environmentally damaging to collect palms that would otherwise led to stable costs, despite rising raw businesses. Examples include: have been left to rot and to use these material prices. for furniture manufacturing. The – a plastics company which collects collection of such palms, often from • Zambia: A fund manager’s due plastic waste and recycles it to use remote parts of Fiji’s two main islands, diligence of an industrial company in as raw material in manufacturing; represents a vital source of income Zambia included an environmental audit – a chalk powder supplier that makes for woodcutters and a link between which found environmental deficiencies, chalk powder from broken ceramics informal and formal markets. including weak management of effluent and glass that it collects and and surface water. An environmental recycles; Social matters management plan was drafted to – a compressed natural gas refuelling address these shortcomings, which plant; • Ghana: At a Ghanaian biscuit is currently being implemented. – three small hydro-projects manufacturer, CDC’s fund manager in Armenia; discovered during interviews with – the construction of a waste to energy management that workers were being plant in the Philippines; and checked for HIV/AIDS without their – replacing coal-fired machines with knowledge or consent during medical equipment based on liquefied petroleum gas. 38 CDC Growth for development

Development highlights in 2008 continued

screenings provided by the company. • India: An Indian company in CDC’s • MTN Nigeria: Where CDC is invested The same was discovered by CDC’s investment portfolio has won praise through its fund manager African staff during a meeting with the from the Confederation of Indian Capital Alliance, has set up a management of a printing company Industry for spreading best practice foundation to implement its corporate in Kenya. CDC’s fund managers standards across its suppliers, social responsibility programme which emphasised to the management consisting of 941 companies. This is funded by an annual grant from MTN of these companies that HIV/AIDS company also has several corporate representing 1% of corporate profits. screenings have to be voluntary social responsibility initiatives, including The MTN Foundation focuses on three and confidential. providing equipment for rural schools key areas: education, economic serving neighbouring villages; and empowerment and health. It partners • Senegal: For a Senegalese firm dealing ‘adopting’ a village where it financed with international and local NGOs in automotives, an explosion of a circuit schools, construction of roads and to implement its projects. breaker in the energy equipment health checkups. Within its own plants, provided to a client killed one worker this company provides vocational • India: For an Indian retail chain, CDC’s and seriously injured two others in training and has an awareness fund manager had identified multiple 2008. An external consulting company programme for HIV/AIDS. It is one of social risks at the time of investment was contracted to investigate the the few companies in India to have SA and subsequently addressed these incident, and determined that although 8000 (social accountability) certification. matters before selling the business. appropriate controls and procedures The social issues identified at the were in place, supervision had been lax. • Nigeria: An investee company providing time of investment included some The report recommended that the firm cash transport services across Nigeria employees being paid below the become more stringent in ensuring that suffered from a number of robberies, minimum wage, poor working workers would comply with health and which led to two fatalities amongst its conditions in a distribution centre safety rules and procedures, and to employees in 2008. In response to and a general lack of focus on labour undertake workshops to increase risk these fatalities, the company conditions. CDC’s fund manager awareness. CDC’s fund manager which implemented a convoy system, which is corrected the wage issue the first week invested in this company currently in place today. CDC has pointed out to after its investment. The fund manager monitors the implementation of these the fund manager that invested in this subsequently increased the emphasis improvements. company that such a convoy system on sound labour practices by recruiting should have been implemented as this an HR manager and introduced new HR • Services and construction sectors: would be an appropriate method for processes, including a compensation When performing due diligence prior cash transit in the insecure region of structure properly aligned with to investments, several of CDC’s fund Eastern Nigeria. applicable wage levels, as well as managers discovered a lack of health and safety training. Working adherence to national, regional or • Papua New Guinea: A plantation conditions in the distribution centre industry sector minimum wage in Papua New Guinea, where CDC’s were swiftly improved, with a major requirements in companies in the capital was invested, created a upgrade in hygiene and safety service and construction sectors. township for its workforce, provided standards. For portfolio companies in Asia as well housing, water and electricity for as in sub-Saharan Africa, CDC’s fund employees, and supplied medical managers insisted upon increased services and education for the wages for workers to adhere to employees’ children. minimum wage levels as a condition before making investments. Chapter 5 – Development highlights in 2008 39

Corporate governance microfinance lender backed by NGOs. • India: Actis, CDC’s single largest fund and business integrity CDC’s fund manager assisted it to manager, is working with the CEO of transform itself into a commercially run the National Stock Exchange (NSE) • India: One fund manager was regulated microfinance provider, which of India, in which it holds a 1% instrumental in improving corporate was eventually acquired by a Kenyan shareholding, to have the NSE promote governance at some of the larger bank looking to expand regionally. ESG issues amongst listed companies companies in India. Although in India and to bring together ESG- commonly believed that it is small • Kenya: An essential part of good sensitive investors with listed companies that require the most corporate governance is to focus companies through forums, investor oversight, recent scandals in India attention on business integrity matters days and panels. The Indian NSE hosts and other countries have illustrated among portfolio companies. During a an ESG index consisting of companies otherwise. For its portfolio companies, visit by CDC’s staff to a Kenyan printing committed to high ESG standards, this fund manager has been active in company, its managing director told which is the first investable appointing independent board CDC that the investment by CDC’s sustainability index in India. members (in five instances), assisting fund manager enabled him to enforce the management team in strengthening zero tolerance on corrupt payments internal controls and processes (in throughout his company; “I tell the seven instances), and improving the buyers who expect a kickback that our quality of transparency of financial international investor just will not accept reporting (in three instances). The such practices.” fund manager has also been actively involved in assisting its portfolio • China: A fund manager for CDC companies to improve investor in China has realised multiple relations, with a view towards greater improvements in corporate governance investor transparency and proper across its portfolio companies, helping communication of financial and to recruit experienced professionals to corporate information. strengthen management teams (in two instances), helping to recruit new, fully • SMEs and microfinance: Another qualified CFOs (in two instances), fund manager, which invests in SMEs establishing a professional finance and microfinance institutions (MFIs), and accounting team (for one portfolio also pays considerable attention to company), and reviewing internal corporate governance matters in its control systems for ISO:9000 due diligence work and throughout certification (for another portfolio the investment period. For a MFI in company). Uganda, this fund manager worked extensively post-investment on improving corporate controls and risk management systems, financial reporting standards, and the composition of the board and management team. Prior to the investment by CDC’s fund manager, this MFI was an unregulated 40 CDC Growth for development

Development highlights in 2008 continued

Serious incidents involving Of the fatalities reported to CDC in Three incidents of fraud or suspected 2008, 17 arose from Umeme, a power fraud were uncovered during 2008 in CDC’s portfolio companies distribution company in Uganda. companies where CDC’s capital is during 2008 Umeme suffered from many years invested. In one case in Zambia, the firm’s CDC’s capital is invested in 681 of underinvestment in its distribution board terminated the employment of the companies. 75% of these companies network before CDC invested in the CEO. CDC’s fund manager is monitoring reported employment data last year, and company in 2005. CDC’s fund manager future developments. Criminal and civil we know that they employ more than Actis is urgently taking steps to address proceedings are underway of a portfolio 676,000 people. Given such large this serious matter. An investment company in Asia where the founder CEO numbers and the inherent risks involved in programme has been agreed and health was utilising a large part of investment business operations in the often loosely and safety procedures improved upon. proceeds to settle inter-company debts. regulated developing world where CDC’s Whilst acknowledging that it will take time One fraud incident at a portfolio company fund managers invest, it is not to bring the network up to international in the Pacific islands was resolved by unexpected to learn that a number of levels of safety, CDC requires evidence replacing the financial controller. In a case CDC’s fund managers have suffered that remedial measures are being taken which has been running for some years, fatalities and other serious incidents in on a continuous basis and is expecting dating back to the time before CDC’s their portfolio companies. CDC requires to see steady improvements over time. investment, proceedings are underway its fund managers to report without delay The Umeme investment is explained in with respect to Alexander Forbes’ any instance involving portfolio further detail as a case study in chapter 7, South African subsidiary to investigate companies which result in loss of life, under Energy and utilities. allegations of misuse of corporate material effect on the environment, or pension funds. material breach of law and how these 17 of the remaining 24 fatalities were instances were dealt with. CDC takes accidents at work. Examples included CDC’s fund manager Aureos explicitly each notification very seriously, and three deaths caused by lightning, a death set out to address previous adverse follows up with the relevant fund manager caused by the electric shock of a security environmental issues at Aluminio de to ensure that appropriate action is taken guard on duty, a lift accident, a worker Panama in 2008. Aureos is currently in a timely manner, and that any underlying killed by electrocution while performing overseeing the implementation of a less systemic reasons for the incidents are welding during the monsoon season, environmentally damaging powder corrected by the portfolio company. the death of a taxi driver from speeding, coating process instead of the previous and the death of a worker in the process anodizing process. During 2008, eight fund managers of hanging advertising billboards. In all reported one or more serious incidents to cases, CDC’s fund managers have taken Many of CDC’s new fund managers have CDC. A total of 41 fatalities were reported, action to prevent reoccurrence. Five not reported any serious incidents. CDC is as well as one environmental incident fatalities arose from security incidents; continuing to work with all fund managers and three cases of alleged fraud. One almost all of them attempted robberies. to promote timely reporting of and ongoing fraud allegation was pursued The remaining two deaths were non-work response to serious incidents. Even during the year. related murder cases, where fund though many portfolio companies have managers have followed investigations not suffered serious incidents, it is of closely. critical importance that CDC’s fund managers engage early on to ensure good practices and preventative measures.

Summary of serious From CDC’s new incidents in 2008: Investment Code:

17 work related fatalities “CDC requires its fund managers to promptly 24 non-work related fatalities inform CDC about incidents involving portfolio companies 1 serious environmental issue that result in loss of life, material effect on the 4 instances of alleged fraud environment, or material breach of law, and any corrective actions taken.” Chapter 5 – Development highlights in 2008 41

Private sector development Many of CDC’s fund managers were the very first to undertake private equity All except one of CDC’s Across its investment portfolio, CDC investments in their markets, introducing 52 private equity fund records information to indicate whether risk capital to allow local businesses to managers have local offices its fund managers are contributing to the realise their expansion potential. strengthening of local capital markets and Examples include Aureos, which in 34 developing countries whether they are successful in attracting pioneered SME investments in East Africa further investors to developing countries, in the late 1990s, African Capital Alliance, CDC’s seven microfinance most importantly additional capital from which managed the first private equity commercial investors. Through the fund in Nigeria, and GroFin and Business fund investors invest in local evaluation work, CDC collects further Partners, which are still largely alone in microfinance institutions information about broader reaching providing capital for very small companies private sector development benefits from throughout Southern and East Africa. its investments. Such benefits include 42% are first time fund other contributions to developing local 42% of CDC’s fund managers are managers capital markets; expansion of businesses managing private equity funds for the first or investments across several low income time. Supporting such first-time fund countries or poor regions within large managers is often considered to be very Actis and Aureos, the two new private countries such as India, China, South risky by commercial investors. CDC’s equity fund managers for emerging Africa and Nigeria; and the wide range willingness to engage with new fund market investing that were spun out of of positive effects for consumers from managers is an important contribution CDC, raised much more third party capital expanded and improved access to goods, to the development of strong investment than the target of US$953m set by the services and infrastructure and better and capacities in the developing countries Department for International Development cheaper products and technologies. where these fund managers are located. (DFID) in 2004. Actis has raised a total of CDC works closely with its first-time fund about US$2.9bn, almost entirely from Local capacity building for stronger managers to ensure that they implement commercial investors. Aureos has raised capital markets in poor countries high standards from all perspectives US$575m of capital from investors other when investing capital from CDC and than CDC, with more investments from Among CDC’s 52 fund managers that other investors, including from the other development finance institutions invest directly in companies25 all but one environmental, social and governance (DFIs) than from commercial investors, operate from local offices in emerging (ESG) perspectives. reflecting the fact that private capital markets. Many of CDC’s fund managers is still reluctant to focus on SME have several offices, including Actis and Increasing amounts of capital investments in poor country markets. Aureos which have 11 and 25 offices, committed alongside CDC DFI investments in Aureos’ funds account respectively, in emerging market locations. in emerging markets for US$427m, while Aureos has raised In total, CDC’s fund managers have US$148m from commercial investors. offices in 34 different countries in The amount of third party capital developing countries, 14 of these are committed alongside CDC has expanded in low income countries. The offices of exponentially during the four years since CDC’s fund managers, which are mostly the creation of Actis and Aureos, from staffed with local investment professionals, US$2.8bn invested alongside CDC in make an important contribution to 2005 to a total of US$21.2bn in capital strengthening local investment capacities invested alongside CDC at year-end 2008. in countries where capital markets are traditionally weak and underdeveloped.

DFI and commercial third party capital (US$) invested alongside CDC

Other DFI capital Commercial capital 21,151m 17,708m 19,718 16,782 2,869m 2,789

1,433

DFID Target 575m 926 US$953m 148 427 80 Aureos Actis Other fund Total managers 42 CDC Growth for development

Development highlights in 2008 continued

Meanwhile, CDC’s other 57 fund Local capacity building: investment committee to inform decisions managers have US$17.7bn in third party of whether or not to commit further capital capital committed to their funds alongside All except one of the fund managers to these fund managers. CDC’s investments. Capital from other covered by the evaluations had local DFIs accounts for only US$926m of the offices in emerging markets, many of Examples of some of the broad, private total. For some of these funds, CDC had them operating from multiple different sector development benefits that were an instrumental role in attracting other hubs in low income countries. Office identified by CDC’s evaluation work in investors, as demonstrated by CDC’s locations for the fund managers covered 2008 are reported below. Further evaluation work in 2008. For other funds, by the evaluations included Lagos, Nairobi, examples of the benefits of thriving CDC has had an important role in Johannesburg, Mauritius, Port Moresby, businesses across all regions and sectors strengthening fund managers’ awareness Karachi, and several offices throughout are provided in the subsequent regional and commitment to responsible India and China. The sole exception was a and industry sector chapters. investment and business practices from U.S. based microfinance fund investor, the ESG perspective. although all of the microfinance Addressing capital market failures: institutions in which this manager invests 24% of CDC’s fund managers have so have offices in developing countries. • Angola: The poor access to finance for far been successful in raising successor SMEs in Southern Africa outside of funds after CDC invested with them, Third party capital: South Africa has improved substantially continuing their work to bring increasing during the last five years. One of the amounts of capital to poor country The amount of capital invested alongside funds included in the evaluations was markets and expanding the financing CDC varied greatly between the 12 funds part of addressing this market failure. available for businesses in these countries evaluated, as did the amount of capital A SME investment in Angola in 2002, to realise their growth potential. from development finance institutions at the time when the country was just (DFIs) as opposed to commercial regaining stability after the end of its Evaluation results in 2008 investors. In total, US$1.7bn in capital civil war, can be considered particularly was invested alongside CDC in these “pioneering”. 12 funds. US$734m of this amount was 83% of fund managers from commercial investors invested in one • South Africa: The same fund invested raised a successor fund large growth capital fund in India. Three in Real People, a South African financial other funds had capital from commercial institution for previously disadvantaged investors in excess of US$100m, two of communities. Real People, assisted by US$1.1bn in successor funds them investing in India and one of them in the credit line from CDC’s fund China. The African funds covered by the manager, helped to bring about a CDC’s evaluation work in 2008 illustrated evaluations were both smaller and had dramatic increase in access to finance the multiple ways that companies in poor more DFI investors than the Asian funds. for such groups. CDC’s fund manager countries contribute to private sector Other DFIs invested with seven of the sourced ZAR100m in credit lines for development. All of the evaluations rated 12 funds evaluated, with an aggregate Real People. The company has the 12 funds that were assessed as commitment of DFIs other than CDC subsequently been able to increase its satisfactory or better on private sector of US$140m. access to credit by over ten times. Old development contributions. Three funds Mutual Investment Group, one of the received the highest rating, excellent. 83% of the fund managers had been largest investment firms in South Africa, successful in raising successor funds. has recently acquired a 25% equity stake Often, such funds were being raised at the in Real People, demonstrating that credit time when CDC conducted its evaluations. for previously disadvantaged communities Evaluation results were used by CDC’s can be attractive for trade buyers.

Private sector development evaluation results (%)

3 1 Excellent 25%, 3 funds 2 2 Successful 67%, 8 funds 3 Satisfactory 8%, 1 fund

1 Chapter 5 – Development highlights in 2008 43

Expansion into low income countries developed over the next few years, Africa. The other company is Virgin and poor regions: with subsequent benefits for local Nigeria, which now flies to eight employment and tax revenues. Nigerian cities as well as to seven • Sub-Saharan Africa: Several of CDC’s capitals in West and Central Africa. fund managers have contributed to • Sub-Saharan Africa: Several of the Previously, air transport was severely the positive trend towards increasing African financial institutions where underdeveloped within the region, business activities across different CDC’s capital is invested have started forcing travellers from one country in African countries and regional to build a regional presence. A Kenyan West Africa to another to fly through economic integration. One of CDC’s bank has expanded into Uganda, London or Paris. fund managers in West Africa was Rwanda and is looking to set up instrumental in helping several of its operations in southern Sudan and DRC. • India: In 2005, the Indian government portfolio companies expand into new A Kenyan microfinance institution announced a new FM radio policy countries. For example, the fund has expanded into southern Sudan. which reduced the radio licensing fee manager helped one of its portfolio and issued 337 new licences for 91 companies, a Nigerian leasing business, Expanding availability of goods, cities. Today, the nascent radio industry to acquire a company in the same services and infrastructure – at lower accounts for 3.3% of annual media sector in Ghana, thereby establishing cost and better quality: spending in India which is about the foundation for regional expansion. US$5.5bn. The radio industry is The fund manager is currently helping • Sub-Saharan Africa: A rapidly booming, with an annual growth rate of the merged company to expand across expanding retail chain among CDC’s 39% compared to overall annual media West Africa. The same fund manager investee companies in Kenya has expansion of 19%. One of CDC’s helped two of its Ghanaian portfolio started to open stores also in portfolio companies, Radio City, is one companies expand into Togo and Sierra neighbouring Tanzania, playing an of the radio companies that benefited Leone, respectively. A Nigerian oil and important role in bringing professional from the Indian media deregulation. gas drilling tools rental business in this retailing to these previously It currently provides 10 million daily fund manager’s investment portfolio underserved East African countries. Indian radio listeners with a diverse and has recently opened offices in Uganda The company’s new stores benefit the high quality programme offering. and Ghana. local consumers in terms of increased availability of a range of products at Local production and ownership of • Indian companies expanding into sub- lower price, thanks to the retail chain’s economic resources: Saharan Africa: Two large mining economies of scale. CDC’s fund companies in the investment portfolio managers’ investments in retail malls • Mauritius: An investee company of one of one of CDC’s Indian fund managers in Ghana and Nigeria have similarly of CDC’s fund managers in Mauritius have initiated expansion activities into expanded access and choice for established and built the first rice milling sub-Saharan Africa; in the case of a coal consumers in West Africa. plant in the country for converting mining company, through ventures into brown rice into white. Previously, all Ethiopia and Tanzania, and, in the case • Nigeria: Two Nigerian transportation white rice had to be imported. This of a zinc processing company, through companies with investments from company has also made important a zinc sourcing concession in the CDC’s fund managers have helped financial contributions to a fund set Democratic Republic of Congo (DRC). to connect different regions in Nigeria up by the Mauritian government for the The new Ethiopian venture is expected with its neighbouring countries and development of local infrastructure and to create 580 local job opportunities. international capitals. One of these the preservation of the local environment. The Congolese operation currently has companies operates bus transport 150 employees, and will be further services throughout Nigeria and West

Third party capital raised per fund Third party capital raised per fund evaluated (DFI excluding CDC, evaluated (non DFI commercial US$m) investors, US$m)

Fund 1 0 Fund 1 11 Fund 2 0 Fund 2 225 Fund 3 9 Fund 3 3 Fund 4 0 Fund 4 145

Fund 5 0 Fund 5 734 Fund 6 6 Fund 6 5 Fund 7 12 Fund 7 12 Fund 8 38 Fund 8 0 Fund 9 0 Fund 9 400 Fund 10 10 Fund 10 20 Fund 11 32 Fund 11 1

Fund 12 31 Fund 12 6 44 CDC Growth for development

Development highlights in 2008 continued

• Nigeria: Investments in Nigerian firms by one of CDC’s fund managers have MTN Nigeria: CITIC Capital Partners strengthened the trend of local firms China Fund: playing a bigger role in the Nigerian oil Driving the Nigerian mobile and gas industry. The indigenisation of telephony revolution Privatisation of state owned the Nigerian oil and gas industry, which enterprises historically has been dominated by When CDC invested in MTN Nigeria large, international companies, is through African Capital Alliance (ACA) in State owned enterprises (SOEs) still play a positive trend for private sector 2001, the company was a start-up, and a significant role in the Chinese economy. development in Nigeria. the Nigerian mobile telephony market was Such companies are usually inefficient, underdeveloped with a total telephone overstaffed and overcapitalised, and Improved standards and regulations: penetration rate of less than 0.5%. At thereby act as a brake on sustainable this time, there were only about 400,000 economic growth and competitive private • India: India’s police force is thinly mobile phone subscribers in Nigeria. sector development. stretched to protect its population, with During ACA’s investment in MTN, only 1.5 police agents for every 1,000 the number of mobile phone subscribers Privatisation and restructuring of SOEs citizens. Consequently, India has the in Nigeria exploded to an estimated in China and elsewhere lead to more largest number of private security 56 million users today. MTN accounts efficient operations and better allocation services companies in the world, which for 20 million of these new subscribers. of capital within and between businesses. is expected to generate one million new Privatised companies are better equipped jobs annually. Unless properly trained Between 2001 and 2008, MTN Nigeria to compete in global markets, and in community safety and the use of invested US$1.8bn in mobile telephony through increased international and weapons and force, security guards infrastructure throughout Nigeria. Nigeria’s domestic sales, expand their businesses, can pose a major threat to the local teledensity (the number of telephone lines number of employees and tax revenues community. Such training was per 100 people) increased from 0.7 to 4126 for local governments. Sometimes, jobs previously not mandatory in India. during this time. MTN Nigeria now provides have to be shed initially during a Neither were mental health checks and mobile telephony services to 223 Nigerian privatisation for a company to become checks of prior criminal records. One cities and towns as well as to more than competitive and thus survive and expand of CDC’s fund managers has invested 10,000 villages and communities across in the medium to long term. Overall, in a rapidly expanding Indian security the country, with a 40% total market share. privatisation of SOEs creates a more service provider, which has brought competitive business environment, a key international training standards to its MTN directly employs 1,900 people, and aspect of private sector development. Indian security guards. This company has created an estimated 20,000 indirect has subsequently successfully lobbied jobs across support sectors, including CITIC Capital Partners China Fund is a the Indian government to introduce communication towers maintenance and US$425m fund raised by CITIC Group, a new legislation that stipulates basic the sale of handsets and accessories. large Chinese financial services regulations for the industry. The conglomerate, which was set up in 1979 company as a result enlisted a large The telecommunications sector in Nigeria by the Chinese government to facilitate number of multinational customers continues to grow at 15 to 20% per year. foreign direct investment. The fund’s and is adding thousands of people With a rapidly expanding population investment focus is the privatisation of to its payroll every month. currently estimated at 148 million, Nigeria SOEs. CDC invested with CITIC in 2006. still has vast potential for continued growth in mobile telephony and One investment in the CITIC portfolio, associated services from its current Harbin Pharmaceuticals, is a manufacturer mobile penetration rate of about 35%, of antibiotics, over-the-counter medicine with corresponding benefits for people and traditional Chinese medicines. Since that for the first time can access all of CITIC’s investment in 2006, Harbin has the new opportunities associated with initiated and completed far reaching modern mobile communication. operational improvements and rapidly expanded its sales. Over the last two years, Harbin has grown from being the fifth largest manufacturer of pharmaceuticals in China to the market leader. Regional reviews Chapter

Sub-Saharan Africa is and has always been the most important investment destination for CDC. This is the region that lags behind the rest of the world in reducing poverty and which suffers disproportionately from lack of foreign direct investments. Asia is another important investment region for CDC. India, with the largest number of poor people in the region, dominates CDC’s Asian investment portfolio.

Going forward, CDC will invest half of its capital in sub- Saharan Africa and 75% in low 6 income countries. This means an ever-increasing focus on the poorest countries in Africa, India and other low income countries in South Asia. 46 CDC Growth for development

Chapter 6 – Sub-Saharan Africa Sub-Saharan Africa, home to a larger £466m CDC portfolio value proportion of poor people than any other 261 portfolio companies region of the world, has made steady in 28 countries progress over the last decade and achieved £160m invested by CDC a sustained average economic growth rate in 2008 of over 5%. Most economists forecast a higher average growth rate for sub-Saharan 95,000 people employed in Africa than for most economies in Europe the 190 portfolio companies which reported data in 200828 and the Americas for 2009, notwithstanding the global financial crisis.27 US$596m in local taxes were paid by the 100 portfolio companies which reported data in 200829

18 of CDC’s fund managers invest in sub-Saharan Africa

CDC’s fund managers have investments in 28 countries in sub-Saharan Africa

ANGOLA MALAWI BENIN MAURITANIA BOTSWANA MOZAMBIQUE BURKINA FASO NIGERIA CAMEROUN RWANDA CONGO (DEMOCRATIC SENEGAL REPUBLIC) SIERRA LEONE CÔTE D’IVOIRE SOUTH AFRICA DJIBOUTI SUDAN GABON SWAZILAND GAMBIA TANZANIA GHANA TOGO KENYA More than 25 investments UGANDA LIBERIA 15–25 investments ZAMBIA MADAGASCAR 6–15 investments 1–5 investments Chapter 6 – Sub-Saharan Africa 47

Development progress and over the last 15 years. Employment also has a widely diversified economy challenges ahead considered to be vulnerable, in terms of and a strong manufacturing base. South workers that are less likely to have access African imports and investments are major Sub-Saharan Africa, home to a larger to social security, income protection and factors behind the positive economic proportion of poor people than any other effective coverage under labour legislation developments for other countries in region of the world, has made steady – and thus more likely to lack critical southern Africa. Nigeria plays a similar progress over the last decade and elements of decent work according to the role for West Africa, and Kenya partly achieved a sustained average economic International Labour Organisation (ILO), so for East Africa. A recent survey by growth rate of over 5%. Most economists represents a 75% share of all workers the professional services firm forecast a higher average growth rate for in sub-Saharan Africa. For women, the PricewaterhouseCoopers (PwC) shows sub-Saharan Africa than for most figures for employment as well as for that business leaders in East Africa were economies in Europe and the Americas vulnerable employment are substantially the most optimistic in the world about for 2009, notwithstanding the global worse than for men.30 Labour productivity growth possibilities, with more than half financial crisis.27 in sub-Saharan Africa is still the lowest in predicting increased revenues in 2009. the world, although some progress has The PwC survey found that 51% of East The relatively positive growth prospects been made during the last decade. African corporate leaders were confident for sub-Saharan Africa as a region come Without the creation of further jobs from about revenue growth for 2009. 58% against a history of economic stagnation, new and expanding businesses, Africans predicted increases in sales over the next with chronically high unemployment and will not be able to raise their living three years. Most CEOs in East Africa persistently high poverty rates. 50% of standards and lift themselves and their covered by this study regard maximising the population in sub-Saharan Africa live families out of poverty. returns from existing markets as their below the poverty line,15 representing main opportunity for growth, sending an more than 400 million people. This makes The global recession is taking its toll on optimistic message about overall growth up about 30% of all poor people in the African businesses, although until now prospects for East Africa. Only 11% of the world. In accordance with current less severely than in Europe, the Americas business leaders interviewed expected to projections, sub-Saharan Africa is lagging and Asia. The global economic downturn have to cut staff levels. Rather, concerns behind other regions in reducing the has brought a 15% decline in South about political turbulence exceeded proportion of poor people as a share of African exports. Countries in sub-Saharan worries about the global recession among the total population. By current World Africa that depend heavily on commodity corporate leaders in East Africa. Bank projections, 37% of the continent’s exports can expect to continue to suffer population will still be poor in 2015. This during 2009, and possibly also over the A number of major issues still impede leaves sub-Saharan Africa way behind all next two years, depending on the severity economic growth prospects for sub- other regions in achieving the Millennium of the current recession. Saharan Africa. The region as a whole is Development Goal to halve, by 2015, the rated as the most difficult in the world in proportion of people living on less than The countries in sub-Saharan Africa that terms of ease of doing business by the US$1 per day. currently experience locally driven growth World Bank and the IFC.31 Corruption is in sales and revenues are less vulnerable still a major factor in day-to-day business Around 40% of the people in sub-Saharan to the current global economic crisis. dealings in many countries. The region, Africa are not employed in the formal Diversification into manufacturing and especially Southern Africa, is ravaged by labour markets.30 Many survive on other higher value-add business sectors, the HIV/AIDS pandemic, with infection occasional or seasonal labour, small sales as well as agricultural production for local rates between 15 and 20% for some activities or subsistence farming. The consumption, can partly drive sustained countries, including Zambia, Namibia and proportion of people employed in sub- economic growth across Africa. South South Africa. Malaria is also a major killer Saharan Africa has only increased slightly Africa, while a major exporter of minerals, of Africans, with more deaths still caused

Largest investment destinations by value (£m) CDC’s investment universe in Africa 111 90 85

31 22 16 12 39

Côte d’Ivoire Ghana Kenya Mozambique Nigeria South Africa Tanzania Uganda

Largest investment destinations by number of portfolio companies 39 44 38

7 9 12 1 6 Low income Côte d’Ivoire Ghana Kenya Mozambique Nigeria South Africa Tanzania Uganda Middle income 48 CDC Growth for development

Sub-Saharan Africa continued by malaria-carrying mosquitoes than 95,000 people are employed in CDC’s 190 in sub-Saharan Africa is Nigeria, which, the HIV virus. Some countries, including portfolio companies in sub-Saharan Africa with £111m invested in 44 different Sudan, Zimbabwe and the Democratic which reported employment numbers in companies, represents 12% of CDC’s Republic of Congo (DRC) suffer from 2008, representing 70% of CDC’s total total investment portfolio. South Africa conflicts and lack of representative portfolio companies in the region.28 For and Tanzania follow as close second and democracy. Other impediments for each person employed, the livelihoods third investment markets in sub-Saharan businesses in sub-Saharan Africa include of an estimated additional four persons Africa for CDC, with £90m invested in 38 lack of access to financial services and are assured.22 Through its investments different companies and £85m invested poor infrastructure. With about one in commercially strong companies, in 12 portfolio companies, respectively. seventh of the world’s population, Africa CDC is thus an important contributor to There are 39 companies in Kenya which generates only about 4% of the world’s economic growth and poverty alleviation are supported by CDC’s capital. 214 of electricity, three quarters of which is used in sub-Saharan Africa. CDC’s 261 portfolio companies in sub- in South Africa and northern Africa. Most Saharan Africa are located in low-income businesses are forced to rely on costly US$600m in taxes was paid to local countries, representing 82% of CDC’s generators rather than regular access governments throughout sub-Saharan portfolio value in the region. to power. In Kenya, 70% of businesses Africa by CDC’s 100 portfolio companies operate their own power generators. which reported tax data in 2008, Energy as a share of the total cost of representing about 40% of CDC’s total doing business in many countries, portfolio in the region.29 CDC’s portfolio including Tanzania, is as high as 10%. companies are accordingly major Small and medium size enterprises contributors to increased government (SMEs) are particularly affected, revenues in sub-Saharan Africa. as many cannot afford the significant costs involved.32 By the end of 2008, CDC was invested with 18 different fund managers through “Don’t look at Africa as CDC’s investments in sub-Saharan 42 different funds in sub-Saharan Africa. a homogenous continent! Africa Seven of these fund managers were newly formed investment groups. CDC’s support Our region is made up of Sub-Saharan Africa is and has always of first-time fund managers in sub- 53 very different countries, been the key investment market for CDC. Saharan Africa represents a major By the end of 2008, CDC had a total investment in local capacity building, some difficult, some easier. portfolio value of £466m invested in 261 which contributes to strengthen the local Capacity and infrastructure companies across the region. Investments capital markets. 15 of these fund differ vastly and gaps should in sub-Saharan Africa make up half of managers have local offices in 13 different CDC’s total portfolio value. US$1.8bn countries, including Madagascar, Côte be bridged with broad in new capital from CDC was committed d’Ivoire, Senegal and Zambia in addition programmes of social and to private equity funds during the last five to the traditional African investment corporate entrepreneurship.” years for investments in sub-Saharan hubs Lagos, Johannesburg and Nairobi. Africa. CDC is now the single largest private equity investor in sub-Saharan CDC’s portfolio companies span across Graça Machel, former Minister of Africa, accounting for 14% of the total the African continent, from Togo to Education and first lady of Mozambique, funds raised for investments in the region Madagascar, Djibouti to Cameroun, speaking at a conference organised between 2003 and 2007, according to and Malawi to Gambia. The single largest by IBLF and GAVI in London CDC’s estimates. investment destination for CDC’s capital on 30 March 2008.

Portfolio companies by sector Investment value by sector (£m) New investments (£m) (number of companies)

Energy Energy 200 & utilities 16 & utilities 93 160 ICT* 22 ICT* 33 Mining 18 Mining 53 96 73 Industry & Industry & 50 materials 30 materials 45 2004 2005 2006 2007 2008 Agribusiness 15 Agribusiness 28 Consumer Consumer goods & goods & services 21 services 46

Financial Financial services 110 services 114

Microfinance 14 Microfinance 4

Healthcare 3 Healthcare 2 Infrastructure 11 Infrastructure 40

Cleaner Cleaner technologies 1 technologies 8 * Information and communication technologies Chapter 6 – Sub-Saharan Africa 49

CDC’s portfolio in sub-Saharan Africa • CDC was an early investor in Celtel, • Infrastructure investments, particularly includes companies of all different sizes, the pan-African telecommunications in power and telecommunication which are active in all sectors of the company that pioneered the use of installations, continue to be a high economy. Financial services represent the mobile telephones across Africa. CDC, priority for CDC. In 2007, CDC’s fund single largest share of CDC’s investment through its fund manager ACA, is also manager Actis established a new portfolio, with investments in 110 an investor in MTN Nigeria, another US$750m infrastructure fund for companies and a total investment value of major force behind the African mobile emerging markets, which includes £114m. 16 energy and utility companies phone revolution which started its rapid several of CDC’s sizeable energy assets represent the second largest sector expansion across the sub-continent by in sub-Saharan Africa. CDC’s portfolio investment for CDC in sub-Saharan providing access to mobile telephony companies include some of the major Africa, with a combined portfolio value of services for 20 million new subscribers electricity generation and distribution £93m. In terms of number of companies in Nigeria. MTN and Celtel are now companies in sub-Saharan Africa, such supported by CDC’s capital, the second expanding across markets that still as Songas in Tanzania, Umeme in largest sector after financial services is have very low mobile phone Uganda, Azito in Côte d’Ivoire, and industrials and materials (excluding penetration, such as the DRC and Tsavo in Kenya. mining), with £45m invested in 30 Cameroun. companies, followed by information Companies from other emerging markets and communication technology (ICT), • CDC has invested in numerous are moving operations and investments with £33m invested in 22 companies, microfinance institutions, helping the into sub-Saharan Africa. The Indian and consumer goods and services, poorest of the poor gain access to government has publicly stated that it with £46m invested in 21 companies. financial services which allow them to expects trade between Africa and India to finance small business ventures and double by 2014. Some of CDC’s portfolio A number of CDC’s fund managers in thus help themselves and their families companies in India are spearheading this sub-Saharan Africa focus on SME and out of poverty. CDC’s fund managers exciting trend. Two successful mining microfinance investments. Aureos have also invested in financial companies from CDC’s Indian portfolio pioneered private equity investments in institutions covering the entire spectrum are currently expanding into Ethiopia and East, West and Southern Africa through from microfinance to large business Tanzania, as well as into the DRC. As three different regional funds. GroFin and banking services. Equity Bank of companies from other emerging markets Business Partners focus on providing Kenya, now one of the largest banks in expand into sub-Saharan Africa, CDC can finance to help even smaller businesses East Africa, which is rapidly expanding help them ensure that their operations expand their activities. its reach into Uganda, Rwanda and continue to adhere to international good Southern Sudan, is an example of such practice standards to protect the In accordance with CDC’s new a successful African bank. Through its environment, safeguard labour and investment policy for 2009 to 2013, CDC investment in GroFin, the first pan- working conditions, and ensure sound will invest at least 50% of its capital in African fund to provide access to health and safety standards. sub-Saharan Africa. finance for small companies needing up to US$1m of risk capital, CDC As one of the leading investors to support supports a large number of small private sector development in sub- businesses that otherwise would have Saharan Africa over the last 60 years, had great difficulties accessing finance CDC has acted as a catalyst for private through traditional banking channels sector development in a number of ways. in sub-Saharan Africa.

CDC’s 18 fund managers have offices in 13 countries in sub-Saharan Africa

2 or more local fund managers 1 local fund manager 50 CDC Growth for development

Sub-Saharan Africa continued

development focused on SME Largest CDC CDC’s 2008 evaluation investments in a range of different investments in Africa5 results for investments sectors, with initially small companies in sub-Saharan Africa successfully expanding across East Africa, bringing the benefits of increased access to financial services, retail, safe Songas, Tanzania33 54 portfolio companies malaria drugs and high quality locally produced steel from recycled scrap metal Energy & utilities to people in Kenya, Tanzania, Rwanda, £70m 5 funds Uganda and, for one of the microfinance investments, to the poor in Southern 34 Sudan. Both of the fund managers DFCU, Uganda 2 fund managers covered by the evaluations pioneered Diversified financial services private equity investment in sub-Saharan £37m In 2008, CDC conducted evaluations Africa. Both have local offices run by of five of its fund investments in sub- local staff. All of the funds evaluated had Saharan Africa. Two of these evaluations positive net IRR, and only one fund was Empower, South Africa35 were final, conducted at the end of the rated as unsatisfactory on financial funds’ duration. Three evaluations were performance. Energy & utilities conducted at midpoint, half way through £32m the funds’ investment duration. The Performance from the environmental, evaluation work included reviews of the social and governance (ESG) 54 companies that these funds had 36 perspective was strong. All funds Diamond Bank, Nigeria invested in as well as the practices of the evaluated achieved a satisfactory or Financials, two fund managers that managed these successful performance rating. 33% of commercial banks five funds from offices across sub-Saharan the portfolio companies covered by the Africa, including staff in Lagos, Nairobi, evaluations had improvements £32m Johannesburg and Lusaka. undertaken or underway in terms of how they manage(d) environmental matters. “Given the concrete The results from the five evaluations Improvements included, for example, conducted in sub-Saharan Africa were new technologies to reduce pollution, opportunities that exist promising. Four of the funds were rated improved waste management, and between our two regions, as overall successful in terms of measures to reduce electricity India-Africa trade could easily development outcome, and only one consumption. 46% of the companies fund was rated as below expectations. covered by the evaluations had measures double to US$70bn over the Two funds received the highest rating, undertaken or underway to improve next five years.” excellent, on economic performance. labour and working conditions, health Two funds received the top rating in terms and safety standards, and/or had made of their portfolio companies’ contributions community development donations from Pranab Mulcherjee, former External Affairs to private sector development. One of corporate profits. Examples included a Minister, currently Home Minister of India, these funds was an important financial partnership between an East African retail as quoted in African Business, May 2009. backer of the Nigerian mobile phone chain and a breast cancer awareness revolution. The other fund that received NGO, a range of new measures to the excellent rating on private sector improve health and safety standards

Summary of CDC’s Evaluation Ratings in 2008 for 5 sub-Saharan Africa funds Excellent Successful Satisfactory Below Unsatisfactory Poor % satisfactory expectations or better Development outcome 0 4 0 1 0 0 80% Financial performance 1 2 1 0 1 0 80% Economic performance 2 2 0 1 0 0 80% ESG performance 0 3 2 0 0 0 100% Private sector development 2 2 1 0 0 0 100%

CDC effectiveness 0 2 3 0 0 0 100% Added value 0 0 5 0 0 0 100% Catalytic 2 2 0 1 0 0 80% Chapter 6 – Sub-Saharan Africa 51

across different industries, and the Key statistics from 2008 evaluations in sub-Saharan Africa introduction of corporate HIV/AIDS policies and programs for workers and their families in multiple portfolio Financial Performance ESG Performance companies. 43% of the portfolio companies covered by the evaluations 3 funds above investment target in terms One fund manager, which manages had seen improvements in corporate of net IRR, 1 within range, 1 below. four of the funds evaluated, was rated governance and/or business integrity highly in terms of its ESG management standards during the funds’ investment systems. The ESG management system period. Economic Performance37 of the other fund manager was rated as satisfactory. 35% of all companies covered by the 83% of portfolio companies showed evaluations had insufficient environmental employment growth with 8,600 new For the 45 portfolio companies that standards at the time of the fund jobs created. received a rating of their ESG managers’ investment, or had management systems by its fund experienced some type of environmental Only 11% of portfolio companies managers and CDC: issues during the funds’ investment decreased their number of workers, period. From the social perspective, this with 360 jobs lost. > 51% were rated as high was the case for 49% of all portfolio companies. These instances most 85% of the portfolio companies > 42% were rated as satisfactory commonly involved inadequate health experienced growth in turnover. and safety standards, but also included Only 13% saw a decrease in turnover. > 7% were rated as poor e.g., instances of compulsory and non- confidential HIV tests of workers and 70% of portfolio companies below-industry standard wages at the demonstrated growth in profitability Private Sector Development time of investment. 47% of all portfolio as measured by EBITDA. Only 26% companies included in the evaluations reported a decrease in profits by the US$148m in third party capital was needed improvements from the corporate same measure. raised by the 5 funds evaluated. CDC governance perspective at the time of contributed a total of US$45m to these investment. CDC is satisfied that the fund funds, 23% of the total capital. managers and their portfolio companies have dealt with these issues in a 16% of the third party capital invested satisfactory manner, or are in the in these 5 funds was from commercial process of doing so. investors, i.e., not from development finance institutions (DFIs).

All fund managers successfully raised larger successor funds.

Quality of ESG management systems of portfolio companies from evaluations (%)

3 1 High 51% 2 2 Satisfactory 42% 3 Poor 7%

1 52 CDC Growth for development

Sub-Saharan Africa continued

important for stabilising the surrounding Key data1 Compagnie Hévéicole communities and aiding rehabilitation of de Cavally, Côte d’Ivoire ex-combatants from the civil war period. Investment:2 US$29m Investment period: 1996-2007 Job creation through Compagnie Hévéicole de Cavally sustainable forestry operates a smallholder programme. Investment sold: 2007 in a post-conflict zone This scheme provides local people with Sector: Forestry planting material, training and finance Fund manager: Actis, Africa Agribusiness to establish their own plantations from Employment: 1,020 A combination of the development of which “cuplump” (raw rubber) is bought Employment growth:3 40% cocoa production for export, close ties to at market prices for processing at the Turnover: €19m France, and significant foreign investment company’s factory. This programme Turnover growth:3 80% made Côte d’Ivoire one of the most boosts economic activity and raises EBITDA: 10m prosperous states in West Africa during € skill levels in the local communities. 3 the 1960s and 1970s. Since then, steep EBITDA growth: 164% As a result, there are about 600 Taxes paid: €0.75m commodity price fluctuations and long smallholders involved in rubber periods of political turmoil and civil war production in the Moyen Cavally region. have significantly destabilised the Footnotes for key data Their production contributes around 1 The data is from 2006, except for when stated otherwise. economy and reduced foreign investment. US$7m to the local economy. 2 US$29m invested by Actis. CDC’s investment in the Africa Today, 37% of the 20 million population Agribusiness Fund is US$93m; total fund size is US$93m. 3 2005-2006. lives below the poverty line. During CDC’s ownership, Compagnie Hévéicole de Cavally built two primary In 1996, through its investment in schools for the local community, paid Compagnie Hévéicole de Cavally, the salaries of school staff, and provided CDC acquired 2,000 hectares of rubber an adult literacy programme for villagers. plantation located in the Moyen Cavally region of western Côte d’Ivoire. At the Côte d’Ivoire, like other sub-Saharan time, CDC was still a direct investor. nations, suffers from high HIV infection CDC’s investment enabled Compagnie rates, with over 4% of the population Hévéicole de Cavally to build a modern reported to be HIV positive. Compagnie rubber processing factory. CDC was one Hévéicole de Cavally supports community of few foreign investors that remained HIV/AIDS awareness initiatives, and has active in Côte d’Ivoire following the coup assisted in the distribution of free d’états in 1999 and 2002, and the condoms to the local community. subsequent civil war. CDC’s investment has been managed by Actis since 2004. With the help of CDC’s fund manager Actis, management at Compagnie In 2006, Compagnie Hévéicole de Cavally Hévéicole de Cavally has been able to produced 14,000 tonnes of rubber for access appropriate agricultural, technical export to customers such as Michelin and commercial advice and assistance, and Goodyear, generating a total of developing an economically viable and €20m in export revenues, which provide sustainable business. much needed hard currency for the Ivorian economy. Despite the long periods of instability experienced in Côte d’Ivoire throughout Compagnie Hévéicole de Cavally is the CDC’s 11 year investment period, only significant source of jobs and income Compagnie Hévéicole de Cavally in a remote rural Ivorian location within developed one of the most productive a country suffering from high levels of rubber plantations in West Africa unemployment. The company employs producing a premium export product. 1,020 permanent staff and over 300 The plantation was sold in 2007 to a well- contractors. These jobs have been established tropical plantation business. Chapter 6 – Sub-Saharan Africa 53

pumps. There are plans to electrify Key data1 Golden Lay Limited, Zambia the workers’ compound to further improve living conditions. Employment opportunities Investment:2 US$5m Investment period: 2006-present and livelihood for small- In developed markets, spent hens scale traders with focus are either processed into pet food, Sector: Agribusiness on food safety and incinerated, or buried in dump sites at Fund manager: Aureos the end of their egg laying life. Although Employment: 120 employee health Zambia has no specific regulations Employment growth:3 18 governing the disposal of chicken waste, Turnover: US$7.2m Zambia is one the poorest countries in Golden Lay has established its own high Turnover growth:3 US$1.5m sub-Saharan Africa. It has a population of quality system. EBITDA: US$1.2m 12 million, more than two thirds of whom EBITDA growth:3 –US$0.3m live below the poverty line. Despite recent At Golden Lay, old but healthy hens efforts to diversify the economy, Zambia are sold to the local community as a Footnotes for key data remains heavily dependent on copper, source of meat protein at low prices. 1 From year-end 2008, except for when stated otherwise. 2 US$5m invested by Aureos, CDC investment in Aureos which accounts for 80% of export Smallholders buy the spent hens for Southern Africa Fund is $13m; total fund size is US$50m. revenues. In rural areas particularly, there onward sale in much the same way they 3 2007-2008. are few employment opportunities outside buy and sell eggs. Otherwise, meat in of mining. Recent falls in international Zambia is too costly for most households. copper prices have resulted in increasing levels of economic hardship. Many Dead birds at Golden Lay are disposed copper mines have reduced production of in mortality pits. These pits are located rates or ceased their operations, resulting away from the water pumps and lay in heavy job losses in the country. Zambia houses, reducing the risk of also suffers from one of the highest contamination to water supplies and HIV/AIDS prevalence rates in sub-Saharan the exposure of livestock to disease. Africa, with 15% of the adult population infected. Many households lack essential With assistance from Aureos, grant food and access to medicine because funding from the European Investment of extreme poverty. Bank (EIB) was secured for the development of an HIV/AIDS awareness Golden Lay is the largest table egg and management programme at Golden producer in Zambia’s copper belt, Lay. Through this programme, staff and accounting for 15% of the total Zambian their immediate families are educated market. Golden Lay sells eggs from its about the disease, provided with access farm through hundreds of small-scale to voluntary testing, anti-retroviral drugs traders who buy eggs for onward sale and vital nutritional supplements. This at a small mark-up and thereby earn funding has also delivered improvements their livelihood. to a local clinic that caters to the broader community. The clinic is financially Since the investment in Golden Lay by supported by Golden Lay and other CDC’s fund manager Aureos, production farmers in the area. It is estimated that the capacity has increased through the HIV/AIDS programme could reduce installation of new laying houses. New Golden Lay healthcare costs by as much staff houses have also been built, as 60% through HIV prevention and providing a third of all employees and retention of infected staff. The company their families with good quality on-site plans to roll out the programme to housing. Sanitation and the supply of the wider community of around running water at staff houses has been 18,000 people. improved, with the replacement of water 54 CDC Growth for development

Asia

Since experiencing its home-grown £363m CDC portfolio value financial crisis in 1998, most of Asia has 348 portfolio companies in enjoyed ten years of rapid economic 28 countries growth and declining poverty, driven by an expanding private sector. The current £230m invested by CDC global recession, however, is taking its toll. in 2008 India followed by China dominates CDC’s investment portfolio in Asia

546,000 people employed in the 281 portfolio companies which reported data in 200838

US$1.2bn in local taxes paid by the 256 portfolio companies which reported data in 200839

29 of CDC’s fund managers invest in Asia

CDC’s fund managers have investments in 28 countries in Asia

AFGHANISTAN PAKISTAN ARMENIA PAPUA NEW GUINEA AZERBAIJAN PHILIPPINES BANGLADESH RUSSIA BELARUS SOLOMON ISLANDS CAMBODIA SRI LANKA CHINA TAJIKISTAN FIJI THAILAND INDIA TONGA INDONESIA TURKEY KAZAKHSTAN UKRAINE KYRGYZSTAN VANUATU

More than 25 investments LAOS VIETNAM 15–25 investments MALAYSIA YEMEN 6–15 investments 1–5 investments Chapter 6 – Asia 55

Development progress and poorest countries in sub-Saharan Africa. There are still high levels of malnutrition challenges ahead Overall, more than 40% of the people in in India, Pakistan and Bangladesh. Those South Asia still survive on about US$1 most likely to suffer from its debilitating Since experiencing its home-grown per day.43 Poverty rates in the region are effects are usually women and children. financial crisis in 1998, most of Asia has projected to decrease, thanks to the rapid By IFC estimates, some 30% of India’s enjoyed ten years of rapid economic rate of economic expansion. South Asia households still lack access to electricity, growth and declining poverty, driven by an is expected to achieve the Millennium and 20% have no sanitation facilities.9 expanding private sector. South Asia as a Development Goal of halving the Access to all types of basic infrastructure region grew by an impressive 8% in 2007. proportion of poor people as a share and services, from clean water to Despite the global financial crisis, growth of the total population by 2015. This healthcare, transportation and rates for 2008 were close to 6%.40 achievement, however, is still expected to telecommunication is in short supply The economic expansion of the two leave 25% of the population of South Asia in rural India, as well as in rural regions dominating economies in Asia, China and desperately poor five years hence. throughout South Asia. The region scores India, were the most remarkable. China second lowest after sub-Saharan Africa grew by 13% in 2007 and continued its China, along with the rest of East Asia, is in global rankings which relate to the ease economic expansion fuelled by domestic faring much better, with current poverty of doing business.31 demand in 2008.41 The Indian economy rates of 30% of the population projected expanded by 9% in 2007 and, like China, to decrease below 5% by 2015.43 Still, The World Bank has argued that if poverty was less affected by the global recession 16% of all the poor in the world currently is to be reduced as projected in South in 2008 than the European and U.S. reside in the vast Chinese territories. Asia, growth rates need to rise to 8 to economies.41 The economic growth rates With the global recession, future growth 10% and stay there for a decade. Earlier achieved by other countries in South and rates are more unpredictable. Rural optimistic projections for poverty South East Asia have also been significant regions of China are lagging behind. reduction in the region may have to and the region is overall a development The bulk of China’s estimated 200 million be altered in light of the current global success story. With the global recession poor people are located in rural Western recession, with growth rates for 2009 increasing its tolls on emerging market China, far away from the booming expected to be far below what was economies, however, 2009 is expected to growth cities of Beijing, Shanghai and expected one year ago. Furthermore, be a tough year for Asia as for the rest of Hong Kong and the nearby factory and both urban and rural infrastructure deficits the world, with lower rates of growth and manufacturing regions. will need to be addressed and a more the prospect of wide scale reductions business friendly environment has in employment. Around 45% of the people in South Asia to emerge. are not employed in the formal labour Despite impressive economic growth, the markets. Only about 30% of all women battle against poverty in Asia is far from are employed. 75% of employment in won. To illustrate the scale of the task, in South Asia is considered to be vulnerable, India today, some 455 million people live in terms of workers that are less likely to below the poverty line, surviving on have access to social security, income US$1 per day or less.15 80% of India’s protection and effective coverage under population survives on less than US$2 labour legislation and therefore more likely per day. The poor in India make up 40% to lack critical elements of decent work of the total number of poor people according to the International Labour in the world.42 According to the IFC, 31 Organisation (ILO).30 of India’s 35 states and territories have incomes comparable to those of the

CDC’s investment universe in Asia Largest investment destinations by value (£m) 166 101

21 17 10

China India Indonesia Malaysia Sri Lanka

Largest investment destinations by number of portfolio companies 144

93 Low income 18 Middle income 7 10

China India Indonesia Malaysia Sri Lanka 56 CDC Growth for development

Asia continued

CDC’s investments in Asia About 550,000 people are employed in largest investment sector for CDC in Asia, CDC’s 281 portfolio companies in Asia with 20 portfolio companies representing CDC has been an active investor in Asia which reported employment numbers to an investment value of £47m. CDC for a long time, pioneering investments CDC in 2008, representing 80% of CDC’s also has important investments in in poor or difficult countries and backing total portfolio companies in the region.38 infrastructure in Asia, with £38m invested promising businesses throughout the For each person employed, the in 28 different infrastructure companies. region. By the end of 2008, CDC had livelihoods of an estimated additional committed a total of US$2.2bn to 59 four persons are assured.22 Through its Given the relative sophistication of the different private equity funds managed by investments in commercially strong private equity industry in India, China and 29 fund managers in Asia. By the end of companies, CDC is accordingly South East Asia, CDC’s focus has been 2008, CDC had 348 portfolio companies contributing to economic growth and to find a balance between proven fund in Asia, with a total portfolio value of poverty alleviation in Asia. managers with track records of investing £363m. CDC’s investments in Asia successfully in growing companies account for almost 40% of CDC’s US$1.2bn in taxes was paid to local and first time fund managers, which total portfolio value. governments throughout Asia by CDC’s contribute to new investment capacities 256 portfolio companies which reported in the economies where they operate. 47% of CDC’s investments in Asia are in tax data to CDC in 2008, representing 18 of CDC’s 29 fund managers in Asia are India or other low income countries.1 India about 74% of CDC’s total portfolio first-time fund managers. This represents is the single largest investment destination companies in the region.39 CDC’s portfolio a major investment by CDC in building for CDC’s capital, with £166m invested in companies are accordingly major investment capacity in the region, 144 companies, accounting for 18% of contributors to increased government thereby contributing to strengthen CDC’s total investment portfolio. China is revenues in Asia, providing important local capital markets. the second largest investment destination funding for primary education, healthcare in Asia for CDC, with £101m invested in and other basic services. 93 companies. CDC’s investment policy for the 2009-2013 investment period CDC’s portfolio in Asia includes focuses CDC’s future investments companies of all different sizes, which exclusively on the low-income countries are active in all sectors of the economy. in Asia. China, having made remarkable Consumer goods and services represent progress in raising living standards and the single largest share of CDC’s having accumulated substantial reserves investment portfolio in Asia, with of capital, will no longer figure as an investments in 84 companies and a total investment destination for CDC from investment value of £79m. Industry and 2009. India will continue to be a major materials (excluding mining) is the second investment focus for CDC, as will the largest sector for CDC’s investment poorer countries in Asia including portfolio in Asia, with £75m invested Afghanistan, Bangladesh, Cambodia, in 81 companies. Healthcare, including Laos, Nepal and Vietnam. hospitals and pharmaceuticals, is the third

Portfolio companies by sector Investment value by sector (£m) (number of companies)

Energy Energy & utilities 19 & utilities 29 ICT* 26 ICT* 14 Mining 8 Mining 6 Industry & Industry & materials 81 materials 75

Agribusiness 13 Agribusiness 18

Consumer Consumer goods & goods & services 84 services 79

Financial Financial services 31 services 29

Microfinance 31 Microfinance 19

Healthcare 20 Healthcare 47 Infrastructure 28 Infrastructure 38

Cleaner Cleaner technologies 7 technologies 9 * Information and communication technologies Chapter 6 – Asia 57

Over the last 60 years, CDC has been an • Promoting microfinance and SME “With the authorities innovative development investor in Asia. investments. CDC invested in Highlights include: Grameenphone in 1997. More recently announcing plans to CDC committed capital to Lok Capital, introduce medical insurance • Extensive investments in the which provides equity capital and to 90 per cent of the rural agricultural sector in South East Asia capacity building support to Indian for over half a century. CDC provided microfinance institutions. Lok Capital community by 2011, a huge finance for setting up the Federal Land facilitates the delivery of affordable infrastructure spending Development Authority (FELDA) in financial services in India, primarily programme and a massive Malaysia in the 1950s. FELDA was to low-income households, in a responsible for promoting rubber and commercially viable and sustainable easing of monetary and rice plantations in widely dispersed manner. CDC is a major investor in financial conditions, the parts of Malaysia. CDC itself Aureos’s SME funds in India, China subsequently established palm oil and South East Asia as well as only debate in my mind plantations in Malaysia, Indonesia and in Avigo’s SME fund in India. is exactly when China will Papua New Guinea. CDC’s last palm oil restore its growth rate back company was sold to Cargill in 2005. Since CDC adopted its fund-of-funds above 8 per cent.” investment model, new investments in agribusinesses have been made Jim O’Neill, Goldman Sachs, March 2009. by CDC’s fund managers. CDC has recently made an investment of US$10m in Rabo Bank’s Agribusiness Fund to be used for new investments in the agricultural sector in India over the coming years.

• Playing an early mover role in developing the Asian private equity industry, and thus strengthening the local capital markets, including in India and China. CDC moved into private equity in India in the mid-1990s and launched its first private equity fund, the South Asian Regional Fund, in 1997. The first CDC sponsored private equity fund in China was set up in 2000. These funds provided a platform for subsequent funds established by CDC’s spin-out fund managers, Actis and Aureos, and gave confidence in the private equity model to a host of other firms. CDC is also an investor in JS Private Equity, a pioneer fund in Pakistan.

CDC’s 29 fund managers that invest New investments (£m) in Asia have offices in 11 countries 230

121 52 82 29 2004 2005 2006 2007 2008

2 or more local fund managers 1 local fund manager 58 CDC Growth for development

Asia continued

investment professionals. Only one fund CDC’s largest investments CDC’s evaluation result was rated as below expectations on any in Asia5 for Asian investments parameter, which was for financial performance.

Paras Pharmaceuticals, 65 portfolio companies Performance from the environmental, India44 social and governance (ESG) perspectives was strong, with all funds evaluated Healthcare, pharmaceuticals 6 funds achieving a satisfactory or higher rating £28m on ESG performance. One of the funds 5 fund managers received the highest rating, excellent, Bharti Infratel Indus, India45 for the multiple improvements realised or In 2008, CDC conducted evaluations of underway in how its portfolio companies Infrastructure, telecoms six of its fund investments in Asia. One of managed ESG matters. 34% of portfolio infrastructure these evaluations was final, conducted at companies covered by the evaluations £16m the end of the fund’s duration. Five were had improvements undertaken or conducted at mid-point, halfway through underway in terms of how they manage(d) the investment duration. The evaluation environmental matters. Such Teknicast, Malaysia46 work included reviews of the 65 improvements included, for example, companies that these funds had invested. reduced pollution from coal mining in Energy & utilities, energy It also assessed the practices of the five India; improved pollution, waste and water equipment & services different fund managers that managed management for a leading Indian ready- £11m these six funds from offices across Asia, mix concrete company; and measures to including staff in several offices in India improve energy efficiency and waste and China, as well as offices in Pakistan disposal from a major cement plant in National Stock Exchange and the Pacific islands. India. 34% of the companies covered by the evaluations had measures undertaken of India, India47 The results from the six evaluations or underway to improve labour and Financials, capital markets conducted in Asia were promising. Four of working conditions, health and safety £10m the funds were rated as overall successful standards, and/or had made community in terms of development outcome. development donations from corporate Two were rated as satisfactory. In the profits. Examples included substantial respective sub-categories, most funds investments in improved health and safety were rated as either successful or production standards in a number of major satisfactory. One fund received the factories, pharmaceutical companies and highest rating, excellent, on financial mining operations in India; enforcement performance, with a net IRR above of minimum wage standards for a large 50% following a very successful exit. service company; improved health and The same fund received the highest rating safety standards for a food producer in for private sector development, which China; and community development included successful contributions to grow programmes associated with a plantation businesses across a multitude of different business in Papua New Guinea. 75% sectors throughout India through the of the portfolio companies covered by fund manager’s local offices with Indian the evaluations had seen improvements

Summary of CDC’s Evaluation Ratings in 2008 for 6 Asian funds Excellent Successful Satisfactory Below Unsatisfactory Poor % satisfactory expectations or better Development outcome 0 4 2 0 0 0 100% Financial performance 1 1 3 1 0 0 83% Economic performance 0 4 2 0 0 0 100% ESG performance 1 3 2 0 0 0 100% Private sector development 1 5 0 0 0 0 100%

CDC effectiveness 0 5 1 0 0 0 100% Added value 0 5 1 0 0 0 100% Catalytic 2 1 1 2 0 0 67% Chapter 6 – Asia 59

in corporate governance and/or business Key statistics from 2008 evaluations in Asia integrity standards during the funds’ investment period. Financial Performance: ESG Performance 27% of all companies covered by the evaluations had insufficient environmental 1 fund above investment target in terms Four fund managers, one of whom standards during the time of the fund of net IRR, 5 funds below. manages two of the funds which were managers’ investment, or had evaluated, were rated highly in terms experienced some type of environmental of their ESG management systems. issues during the funds’ investment Economic Performance:48 One fund manager received a period. From the social perspective, satisfactory rating. this was the case for 31% of all portfolio 66% of portfolio companies showed companies. These instances most growth with 21,700 new jobs created. For the 43 portfolio companies commonly involved inadequate health that received a rating of their ESG and safety standards, but also included, Only 5% of portfolio companies management systems by their fund for example, below-industry standard decreased their number of workers, managers and CDC: wages at the time of investment. 33% of with 390 jobs lost. all portfolio companies covered by the > 88% were rated as high evaluations needed improvements from 80% of portfolio companies experienced the corporate governance perspective at growth in turnover. > 12% were rated as satisfactory the time of investment. CDC is satisfied that the fund managers and their portfolio Only 2% saw a decrease in turnover. companies have dealt with these issues Private Sector Development in a satisfactory manner, or are in the 48% of portfolio companies process of doing so. demonstrated growth in profitability US$1.5bn in third party capital was as measured by EBITDA. 32% reported raised by the 6 funds evaluated. CDC “In the next five years the a decrease in profits by the same contributed a total of US$314m to these roads will get fixed, the ports measure. funds, 17% of the total capital. sorted out, there will be 200 82% of the third party capital invested million mobile subscribers in these 6 funds were from commercial and a huge increase in investors, i.e., not from development productivity.” finance institutions (DFIs). All of the fund managers that were Dalip Pathak of Warburg Pincus covered by the 6 evaluations have talking about India in Business Week, successfully raised larger successor 20 June, 2005. funds, or are in the process of doing so. One of the fund managers did not raise a successor fund for the specific geography covered by one of the funds evaluated.

Quality of ESG management systems of portfolio companies from evaluations (%)

2 1 High 88% 2 Satisfactory 12% 1 60 CDC Growth for development

Asia continued

Apart from the provision of finance, Key data1 Sathapana, Cambodia Sathapana is focused on actively helping entrepreneurial poor people, especially Access to finance and Investment:2 US$1.25m women, to develop micro-enterprises. Investment period: 2004-present business start-up advice Women run more than 60% of all micro- empowers poor women enterprises in Cambodia. Despite a strong Sector: Microfinance entrepreneurial culture, women in Fund manager: ShoreCap Management Employment: 653 Cambodia has a population of 14 million, Cambodia face socio-cultural and political Employment growth: 366% 36% of whom live below the poverty line. discrimination, and have limited Taxes paid: US$1m The country has emerged from decades opportunities for employment. of dictatorial rule and civil conflict and half Approximately 70% of loans made by Borrowers: 37,160 of the government budget comes from Sathapana are to women. Higher income Borrower increase:3 28,670 foreign aid. The economy is dependent on for women tends to result in better Gross loan portfolio: US$37m agribusiness, tourism and manufacturing, nutrition, welfare, and education for their Gross loan portfolio increase:3 US$33m with rice, fish, timber and rubber being the children and other dependents Total deposits: US$2m main exports. Recent discoveries of oil Increase in deposits:3 US$2m Sathapana has employed a specialist and gas offshore are expected to drive % Women: 70% future economic growth. environmental officer to strengthen environmental management. Measures Loan portfolio at risk >30: 0.2% include encouraging environmental Sathapana, formerly known as Footnotes for key data Cambodian Entrepreneur Building Ltd, is awareness among staff, with an emphasis 1 From year-end 2008, except for when stated otherwise. a microfinance organisation in Cambodia. on recycling, the use of energy efficient 2 US$1.25m invested by ShoreCap International, CDC’s light bulbs, and the safe disposal commitment to ShoreCap International is US$4m; total fund Since starting operations in 1996, size is US$28.5m. Sathapana has provided 315,000 loans of hazardous materials. 3 2004-2008. with a total value of US$126m to over 108,000 households. With each loan benefiting several family members, Sathapana’s lending has had a positive impact for an estimated 700,000 people. Sathapana has 33 branches, covering 14 provincial areas and reaching 3,000 rural villages. It employs 653 full time staff members, of whom 117 are women. All staff members are paid above the local minimum wage, and have access to training and healthcare.

An affiliate of CDC’s fund manager ShoreCap International, ShoreCap Exchange invested in Sathapana in 2004 and has provided Sathapana with technical assistance to improve its financial, audit and information systems. Chapter 6 – Asia 61

Sainik Mining is a pioneer in the use of Key data1 Sainik Mining, India surface mining techniques in India. As this method reduces the need for drilling and Expanding coal mining in Investment:2 US$35m blasting, the overall pollution levels in coal Investment period: 2007-present a responsible and extraction are much lower as compared sustainable manner to conventional coal mining. Sector: Mining Fund manager: ICICI, Dynamic India Fund VII Access to energy is a major problem in Sainik Mining’s sister company, which is Turnover: US$70m India, with an estimated 400 million poor owned by the same family, has pioneered 3 people lacking reliable power in their a “washing” process to reduce the levels Turnover growth: US$21m homes. Coal is India’s least expensive of ash released when coal is burned. EBITDA: US$19m source of primary energy and currently The washing plant at Sainik’s mining EBITDA growth:3 US$8m meets two-thirds of India’s energy needs. operations in Chattisgarh is the largest Taxes paid: US$2m The coal industry is vital to India’s such facility in the world. continued economic growth and to Footnotes for key data Sainik has also developed technology 1 The data is from 2008, except for when stated otherwise. increasing access to energy for poor 2 US$35m invested by ICICI. CDC investment in ICICI’s and rural areas. to produce thermal power from the coal it Dynamic India Fund VII is US$75m; total fund size is rejects as too high in ash content from its US$810m. 3 2007-8. Coal in India, however, has a very high washing process. Sainik’s new technology ash content which means that when reduces greenhouse gases and other extracted and burned, higher levels of pollutants that are released during greenhouse gases and other pollutants combustion, transportation and disposal are released compared to when coal of high ash coal. from other countries is burned. India is currently the world’s fourth largest emitter Sainik Mining provides jobs for hundreds of greenhouse gases. The expansion of workers and contractors at its mines, of coal energy accordingly has to be all of which are remotely located. carefully managed from an environmental It provides high living standards for the perspective. relocated workers and their families, good housing, healthcare facilities and a Sainik Mining is one of the biggest coal school for the children at the Chattisgarh mining contractors in India. The company mine. Health and safety standards are was founded in East India by two ex- carefully monitored. servicemen and their families, and has become one of India’s leading mining Sainik Mining contributes to charity, operators. An investment from CDC’s financing the operation of a school in fund manager ICICI has helped to the slum district next to its New Delhi finance Sainik’s expansion. headquarters as well as schools in the areas close to its mining operations, which are attended by 1,100 children.

Sainik Mining is now exploring opportunities to extend operations to other parts of the world including Africa. 62 CDC Growth for development

Other regions – Latin America

Development progress reforms. With its population of almost £49m CDC portfolio value and challenges ahead 200 million people, Brazil is the fifth most populous country in the world and a huge 45 portfolio companies in Latin America is relatively prosperous domestic market. Not surprisingly, Brazil compared to CDC’s other investment dominates the Latin American private 13 countries geographies, although it has some of the equity market, with well developed largest income inequalities in the world. capital markets and a large, liquid stock £12m invested by CDC Most countries in the region, with the exchange. In contrast, Mexico has a exception of Cuba and Haiti, are classified relatively small private equity market in 2008 as middle-income economies. compared to the size of its economy, given a relatively difficult tax environment, 20,000 people employed in Economic growth in the majority of the an immature stock market and the lack countries in Latin America has been of a strong investment culture. Colombia the 24 portfolio companies strong over the last years, with average and Peru are new private equity markets which reported data in 200849 growth rates above 5% in 2006 and 2007 with great potential, commercially as well for the region as a whole. The economic as developmentally given their fragmented growth in Latin America over the last five industries with several companies of all US$400m in local taxes years has benefited from an expansion in sizes in need of modernisation. Chile, paid by the 22 portfolio inter-regional trade and exports outside of a relatively small and rich economy, the region, primarily to the United States. is arguably not in need of public companies which reported Growth rates for some economies, development finance. data in 200850 including Brazil and Mexico, were lower, while some other countries performed The global recession in 2008 adversely better than the regional average. Notable affected economic growth rates also in examples included Argentina and Latin America. On average, Latin America Venezuela, which grew by 9% and 8%, grew by more than 4% in 2008, while CDC’s largest investments in 54 5 respectively, in 2007. While impressive, there were major differences between Latin America the high growth rate in Venezuela was how different countries in the region were driven by booming oil prices and growth affected by the downturn. The decline in 51 in Argentina was fuelled by populist oil prices in 2008 adversely affected the Regal Forest, El Salvador measures including artificial currency major oil producers, including Mexico, Consumer durables & apparel interventions to promote exports. Venezuela, Colombia and Ecuador. Other £18m countries suffered from the declining 52 Several countries in Latin America have demand for imports from the United Nextel, Brazil made strides in improving their fiscal and States, the major export market for the Telecoms, monetary policies over the last years, region. Mexico is currently experiencing wireless telecoms services which has improved their economic a major recession, partly due to its close growth prospects and made their markets economic relationship with the United £3m more attractive for international investors. States which accounts for the bulk Capsa Diadem II, Argentina53 Brazil, Chile, Colombia, Peru and Mexico of Mexican exports. Argentina and Energy & utilities, oil, gas & are notable examples, while Argentina, Venezuela are also struggling after Ecuador and Venezuela are lagging previous boom years. On the other hand, consumer fuel behind in implementing economic Peru, Colombia and Brazil seem to be £3m

CDC’s fund managers have investments in 13 countries in Latin America

ARGENTINA BRAZIL COLOMBIA COSTA RICA ECUADOR EL SALVADOR GRENADA GUATEMALA HAITI MEXICO PANAMA PERU ST. LUCIA

6–15 investments 1–5 investments Chapter 6 – Other regions – Latin America 63

coping relatively well with the global CDC’s investments in Latin America Microfinance represents 5% of CDC’s recession, albeit with significantly lower total investment value in Latin America, GDP growth than over previous years. Investments in Latin America investment, with £2m invested in three different make up about 5% of CDC’s total microfinance institutions. These providers Foreign investment and private credit to investment portfolio, with a total portfolio of finance for the poor service the Latin America have expanded widely over value of £49m invested in 45 different segment of Latin America’s population the last five years, and were major factors companies. CDC is invested in ten that previously did not have access to behind the positive economic growth different funds investing in Latin America necessary capital to initiate or grow enjoyed by most countries in the region which are managed by six fund managers. their small businesses and thus improve over this period. The current financial All of these fund managers are locally livelihoods for themselves and their crisis has seen a drop in foreign based and managed by local teams. families. investment for Latin America in 2008, CDC’s fund managers have offices in as for most other economies. Argentina, Brazil, Costa Rica, Colombia, About 20,000 people are employed in El Salvador and Mexico. CDC’s 24 portfolio companies in Latin Despite relatively high average income America which reported employment levels and strong economic growth in CDC is invested in 13 different countries numbers to CDC in 2008, representing Latin America in recent years, poverty and in Latin America, including the largest slightly more than half of CDC’s total inequality persist. Some of the countries economies Brazil, Mexico and Argentina, portfolio companies in the region.49 For in the region, notably Brazil and Colombia, but also some of the smaller, poorest each person employed, the livelihoods suffer from higher income inequalities than countries in the region like Guatemala, of an estimated additional four persons most other countries in the world, with El Salvador and Haiti. Regal Forest are assured. a small minority of very wealthy families, Holding in El Salvador is CDC’s single a substantial middle class, and large largest investment in Latin America, with US$400m in taxes was paid to local numbers of very poor people. More than an investment value of £18m. Mexico governments throughout Latin America 20% of people in Latin America still is otherwise CDC’s largest investment by CDC’s 22 portfolio companies which subside on less than US$2 per day. More destination in Latin America, with £8m reported tax data to CDC in 2008, than 5% of Latin Americans survive on invested in nine companies, followed representing slightly less than half of around US$1 per day. About 45 million by Brazil, with £7m invested in five CDC’s total portfolio in the region.50 people in the region fall below the poverty companies. In Costa Rica, CDC is line, representing 3% of all poor people in invested in ten small and medium size Going forward, Latin America is not CDC’s the world.15 Poverty rates are expected to enterprises (SMEs). most prioritised investment region as decrease in Latin America over the next CDC’s investment policy for the 2009 to five years, but at a much slower pace than CDC’s investments in Latin America span 2013 period is to focus on the poorest what some of the countries in Asia, most industry sectors. Consumer goods countries in the world, which are primarily notably China, are expected to be able and services account for the bulk of located in sub-Saharan Africa and South to achieve. CDC’s investment value, with £22m Asia. Through its fund managers, CDC invested in ten different companies. will primarily focus new fund investments Energy and utilities, banking and financial in Latin America on the SME sector. services, as well as information and communication technologies (ICT) are also well represented among CDC’s Latin American investments, with investment values above £5m per sector and 21 different portfolio companies across these three sectors.

Largest investment destinations by CDC’s investment universe CDC’s 6 fund managers that invest number of portfolio companies in Latin America in Latin America have offices in 6 countries

10 9 5 3 4 3

Argentina Brazil Costa Rica El Salvador Mexico Peru

New investments (£m) 61 30 14 12 6 2004 2005 2006 2007 2008 2 or more local Low income fund managers Middle income 1 local fund manager 64 CDC Growth for development

Other regions – North Africa

Development progress CDC’s investments in North Africa £50m CDC portfolio value and challenges ahead North Africa makes up about 6% of 27 portfolio companies in The five countries that make up Northern CDC’s total investment portfolio, with a Africa: Morocco, Algeria, Tunisia, Libya, portfolio value of £50m invested in 27 4 countries and Egypt, are relatively more prosperous different companies. CDC is invested in than the countries in sub-Saharan Africa. two funds managed by two different fund £35m invested by CDC Economic growth has been positive over managers. Both fund managers are locally the last years, with average growth rates based and both have offices in Tunisia in 2008 for the region above 5% in 2006 and and Morocco. One of the fund managers close to 6% in 2007. Despite the global also has an office in Egypt; the other has 15,000 people employed in recession, North Africa kept up its an office in Algeria. CDC also has some relatively high economic growth rate in exposure to North Africa through pan- the 19 portfolio companies 2008, averaging 6% across the region African funds. which reported data in 200855 with Egypt and Tunisia performing even better.40 CDC is invested in four of the five countries that make up North Africa, with US$10m in local taxes About 3% of the population in North the exception of Libya. Algeria is by far paid by the 12 portfolio Africa and the Middle East live on about the largest investment destination for CDC US$1 per day.57 In terms of absolute in North Africa, through a large investment companies which reported numbers, this represents less than 1% of £37m in Algeria’s first private mobile data in 200856 of all poor people in the world. Poverty phone operator, Orascom Telecom. rates in the region is projected to Orascom is CDC’s second largest 15 * decrease further by 2015. individual company exposure anywhere in the world. Other investments by CDC- Despite relatively high average income backed funds in Algeria amount to £4m levels, North Africa and the Middle in five different companies. Investments East continue to suffer from high in three companies in Egypt represent unemployment, especially among youth CDC’s second largest country exposure and women.57 Only around 25% of the in North Africa, representing a total young and less than 30% of women are investment value of £13m. CDC estimated to hold formal employment. furthermore has £8m invested in nine These statistics are the lowest for any companies in Tunisia and £3m invested region in the world.58 Lack of access in seven companies in Morocco. to finance, especially for poor people, women entrepreneurs and smaller businesses, also remain major impediments to sustained economic growth in North Africa.

CDC’s fund managers have investments in 4 countries in North Africa

ALGERIA EGYPT MOROCCO TUNISIA

6–15 investments 1–5 investments Chapter 6 – Other regions – North Africa 65

CDC’s investments in North Africa include Going forward, CDC does not plan to most industry sectors. CDC has other commit more capital solely to North CDC’s largest investments assets in infrastructure and ICT, in Africa, in view of its focus on the poorest in North Africa5 addition to the large Orascom investment countries in the world which are mostly in mobile telephony infrastructure and located in sub-Saharan Africa and South 59 wireless services, with £1m invested in Asia. North African companies, though, Orascom Telecom, Algeria three other telephony infrastructure are increasingly active investors in Telecoms, companies and £1m invested in one other sub-Saharan Africa. Through CDC’s ICT company. Healthcare represents investments in pan-African funds, wireless telecoms services CDC’s second largest sector exposure CDC is likely to continue to have an £37m in North Africa, with £6m invested in three exposure to the region. different companies. The third largest sector for CDC’s investments in North Amoun Pharmaceuticals, Africa is consumer goods and services, Egypt60 with £5m invested in four companies. Healthcare, pharmaceuticals Agribusiness comes fourth with £3m invested in four companies. £7m

About 15,000 people are employed in 61 CDC’s 19 portfolio companies in North Sinai Marble, Egypt Africa which reported employment Materials, metals & mining numbers to CDC in 2008. This represents £5m 70% of CDC’s total portfolio companies in the region.3 For each person employed, the livelihoods of an estimated additional four persons are assured.

US$10m in taxes were paid to local governments throughout North Africa by CDC’s 12 portfolio companies which reported tax data in 2008, representing 45% of CDC’s total portfolio in the region.4

CDC’s investment universe CDC’s 2 fund managers that invest in Largest investment destinations by in North Africa North Africa have offices in 4 countries number of portfolio companies 9 6 7 3 Low income 2 or more local fund managers

Middle income 1 local fund manager Algeria Egypt Morocco Tunisia

New investments (£m) 46 34 25 15 14 2004 2005 2006 2007 2008 66 CDC Growth for development

Other regions continued

The investment from CDC, through Actis, Panamanian legislation for treatment of Orascom Telecom, Algeria has helped to attract further commercial wastewater. The company also actively Orascom, Algeria capital to what is widely considered to be cooperates with ANAM, the Panamanian a risky political environment. environmental national authority to ensure 14 million new mobile phone its operations have minimal environmental subscribers in a impact. All effluent discharged by Key data1 post-conflict country Aluminio de Panama complies with both local standards and International Finance 2 Investment: US$26m Corporation (IFC) guidelines. Algeria has a population of 34 million, Investment period: 2004-present 12% of whom are estimated to live below Sector: Telecoms Over the course of CDC’s fund manager the poverty line. The country derives Fund manager: Actis, Africa fund 1 Aureos’ investment, Aluminio de Panama significant revenues from oil, which have Employment: 3800 has implemented a number of stimulated economic growth and Employment growth:3 1900 improvements to its facilities in order development over the last ten years. Turnover: US$1.9bn to reach compliance with international However, the development of a strong 3 standards. Using money invested by Aureos, private sector and a diversified economy Turnover growth: US$1.14bn Taxes paid: US$70 the company improved its production have been hindered by a number of process, replacing hexavalent chromium factors including political turmoil, lack of Footnotes for key data with less environmentally harmful chemicals. capital, administrative barriers, inadequate 1 From year-end 2008, except for when otherwise stated. infrastructure and limited access to 2 US$26m invested by Actis. CDC’s investment in Actis Africa Aureos is currently helping Aluminio de information technology. Fund I is US$308m; total fund size is US$308m. 3 2004-2008. Panama to obtain additional financing to further improve its wastewater treatment Orascom is a leading mobile phone process and achieve international operator in Algeria. It currently has certification. 14 million mobile subscribers. Established Aluminio de Panama, Panama in 2001, Orascom was the second mobile Improved wastewater treatment will allow phone company in Algeria to be granted Improving wastewater for the recycling of sludge, a solid residue an operating licence. At this time, there treatment in a high-risk generated in the production process. were only 80,000 mobile subscribers in industry Currently, sludge is disposed of, but, if Algeria, serviced by the sole state owned properly treated, other products can be operator. obtained and reused from its recycling. Panama has been one of the fastest When CDC, through its fund manager growing economies in Latin America in Actis, invested in Orascom in 2004, the recent years, averaging 9.5% growth rates Key data1 number of mobile phone users in Algeria since 2006. Despite the high level of had risen to over one million. Still, Algeria economic growth, the country has one Investment:2 US$5m had one of the lowest mobile phone of the highest levels of income inequality Investment period: 2006-present penetration rates in the world. Actis’ in the world, with over 30% of the Sector: Manufacturing investment was used to complete population of 3 million living in poverty. Fund manager: Aureos Orascom’s licence payment and to fund Employment: 260 further expansion of the network and Located outside of Panama City, Employment growth:3 60 improved infrastructure. By the end of Aluminio de Panama is the country’s Turnover: US$15m 2007, the number of mobile users in leading aluminium manufacturer. It makes 3 Algeria had risen to 28 million. a range of aluminium products for Turnover growth: US$5m architectural and structural use by the Footnotes for key data Orascom Algeria is recognised in North construction industry. 1 From year-end 2008, except when otherwise stated. Africa as an environmentally and socially 2 US$5m invested by Aureos. CDC’s investment in Aureos responsible firm, and has been ISO9001 The process of manufacturing aluminium Central America Fund is US$10m; total fund size is US$36m. 3 2006-2008. (Quality Management Systems) and can generate significant and potentially ISO14001 (Environmental Management environmentally harmful wastewater. Systems) certified. Aluminio de Panama complies with Industry sector reviews Chapter and SME funds

Businesses of all sizes, operating in all sectors, are important for sustainable development and economic growth. Manufacturing, financial services, technology, consumer goods and services, industry, retail and agribusiness all have vital contributions to make. Small and medium size enterprises (SMEs), start-ups and larger businesses are all important. CDC’s fund managers invest across the full range of industry sectors and in businesses of all sizes and at all stages of development.

This report highlights the development value of multiple industry sectors and focuses particularly on CDC’s investments in energy and utilities, information and communication technologies (ICT), financial services, microfinance and funds for investment in SMEs. 68 CDC Growth for development

Chapter 7 – Industry sector reviews and SME funds

CDC’s fund managers invest in companies Industry sector reviews and SME funds 69 Focus industry sector reviews: across all sectors of the economy which 69 Energy & utilities all have important contributions to make 72 Information and communication technologies (ICT) to private sector led growth and social 74 Financial services and economic development. 76 Microfinance 78 Brief industry sector reviews: 78 Mining This chapter provides in depth reviews of 78 Industry & materials CDC’s investments in a few selected sectors 79 Agribusiness 79 Consumer goods & services and SME funds. Other sectors are briefly 80 Healthcare covered. Further information on CDC’s 80 Infrastructure 81 Cleaner technologies investment portfolio and case studies are 82 SME funds provided on CDC’s website and will be published in future reports.

CDC’s fund managers have investments in 74 countries

More than 25 investments 15–25 investments 6–15 investments 1–5 investments Chapter 7 – Industry sector reviews and SME funds 69

Energy & utilities

The lack of safe and reliable electricity is one of the most important obstacles for individuals and businesses in developing countries.

The value of energy and utilities The provision of adequate power £126m CDC portfolio value for development generation and distribution in poor countries will be impossible without major 44 portfolio companies Electricity is needed to power small capital investments. Jamal Saghir, director industry and enterprises, run health clinics for energy, transport and water at the in 17 countries and light schools. Without access to World Bank, has commented that Africa reliable electricity, rural poverty will needs investment in energy of US$31bn £64m invested by CDC not be eradicated. The World Bank a year.63 estimates that nearly 75% of the in 2008 population in sub-Saharan Africa lacks Over one billion people in poor countries access to electricity. 700 million people currently do not have access to safe 10,000 people employed in in South Asia similarly do not have power drinking water. One of the United Nations’ to their homes and businesses.62 Millennium Development Goals is to halve the 28 portfolio companies this number by 2015. More than two which reported data in 20083 Lack of access to electricity often results billion people lack access to basic in aggravated environmental degradation sanitation. Removal of solid waste and pollution arising from reliance on is recognised by the World Health US$375m in taxes paid by biomass fuels, with firewood the Organisation (WHO) as one of the most the 20 portfolio companies traditional energy source. Firewood is urgent problems in developing countries 4 usually gathered by women and children, to prevent the spread of disease and which reported data in 2008 the daily task often taking hours and decrease child mortality. As for power, acting as an impediment to earnings investments in utilities are a pressing and education. priority for developing countries.

Network safety is frequently poor in CDC’s investments in energy developing countries as high-voltage and utilities power lines are often damaged and exposed. Frequent power outages Investing in power has been a longstanding impede performance for local businesses, priority for CDC. In 2002, CDC with losses in productivity and revenues. established Globeleq, a wholly owned Employees and entrepreneurs suffer subsidiary, by combining all of its power through loss of earnings. Many investments. Four years later, Globeleq businesses are forced to rely on costly had investments in 23 power companies generators, adding considerably to total in 16 countries with a total of more than energy costs.32 2,000 Megawatts in generation capacity and ownership of one national power distribution company in Uganda.

CDC’s fund managers have investments in energy & utilities in 17 countries

CDC portfolio company 70 CDC Growth for development

Energy & utilities continued

“No profit seeking company Globeleq has played an important role Tsavo has been commercially operational in economic development by helping to since 2002. Unlike many other energy can afford to bet on Africa’s provide reliable, affordable energy and generation plants in sub-Saharan Africa, unreliable power (…) as the increased access to electricity for it abides by the International Finance source of its manufactured large numbers of new customers in Corporation’s (IFC) environmental and developing countries. health and safety guidelines for power inputs. Of course, were generation. During the decade of CDC’s Africa’s dire infrastructure In 2007, Globeleq sold its operating investment, Tsavo has substantially predicament remedied, its power businesses in Latin America, improved environmental management and North Africa and Asia, to two international can be considered a role model for power change for higher-value trade private sector companies. The energy generation in the region. could dramatically improve.” generation and distribution companies in sub-Saharan Africa were retained for The Azito power plant, near Abidjan in further investment and improvement Côte d’Ivoire, is another CDC investment Dambisa Moyo, author of the book over the coming years and are managed built in full accordance with IFC’s “Dead Aid”, p. 120-121. by CDC’s fund manager Actis. environmental and health and safety These investments include: guidelines. It is considered to be one of the most modern power stations A major natural gas producer in Tanzania, in West Africa. Songas is CDC’s single largest investment worldwide, representing an investment The sale of Globeleq released over value of £70m. Songas provides clean US$1bn for re-investment by CDC in poor energy to the Tanzanian national grid and countries. CDC and its fund manager industrial users in Dar es Salaam. The Actis consequently established a Songas-owned gas-to-electricity project new US$750m emerging markets on Songo Songo island became infrastructure fund focused on the poorest operational in 2004 and currently countries in sub-Saharan Africa and accounts for 20% of Tanzania’s installed South Asia. power generation capacity. Previously, Tanzania’s primary source of energy was Through the Global Environment Fund imported oil. Songas provides a (GEF), CDC invests in Duoyuan Global significantly cheaper source of locally Water, a water treatment equipment generated electricity. The cost of power supplier in China. As a provider of delivered in Tanzania has halved from circulating water treatment, water US$0.11 to US$0.06 per KWh and the purification and wastewater treatment, heavily indebted Tanzanian economy has Duoyuan is contributing to China’s ability been able to reduce its dependency on to tackle its water problems, including expensive oil imports.64 water supply, water quality, infrastructure and effluent treatment capacity. The Songas also brings environmental company has had a full environmental, benefits as gas is a cleaner source social and governance (ESG) review of energy than oil. as part of its ISO certification process. Issues identified were addressed through CDC’s investment in the Tsavo heavy fuel an environmental action plan. The action oil turbine power plant near Mombasa plan’s execution is a covenant in the in Kenya, began in the 1990s when the legal agreements signed with GEF, and Kenyan government introduced improved requires Duoyuan to meet the standards environmental legislation and policy for environment, health and safety set reforms for private sector investments. by the IFC which are shared by CDC.65

CDC’s largest investments Portfolio value by region (£m) Number of companies by region in energy & utilities5

4 5 1 Africa £90m 5 1 Africa 21 2 China £9m 4 2 China 5 £70m Songas, Tanzania 3 India £2m 3 India 6 Energy generation33 3 4 Other Asia £18m 4 Other Asia 8 2 5 Latin America £7m 5 Latin America 4

1 £32m Empower, South Africa35 3

Multi-utilities 2 1

£11m Teknicast, Malaysia46 Equipment and services

£7m WSP Holdings Ltd, China66 Equipment and services

£7m Gulf of Guinea Energy Limited, Nigeria137 Oil, gas and consumable fuel67 Chapter 7 – Industry sector reviews and SME funds 71

accidents each year. In the four years Key data* Umeme, Uganda since CDC’s investment in Umeme, the number of fatalities was 53 in total, Upgrading an ailing power CDC investment: US$40m a cause of serious concern. The number Investment period: 2005 – present distribution network of fatalities is expected to fall as a consequence of a sustained programme Shareholding: 100% owned by CDC Umeme is the prinicipal power distribution of renewed safety measures and Sector: Power distribution company in Uganda. Formerly state- renewed investment by CDC’s fund Fund manager: Actis owned, Umeme’s network covers a manager Actis. New power significant proportion of Uganda and distribution customers: 88,000 includes 230,000 poles and 17,000 km In addition to the investments in replacing Employment: 1165 of overhead cable. and upgrading old power poles and Employment cables, Umeme has undertaken an growth: 1000 (contractors) Umeme has played an important role in extensive safety outreach programme Turnover: US$233m increasing access to electricity. 88,000 to educate the Ugandan public. Safety EBITDA: US$32m new customers have been connected by awareness information has been Taxes paid: US$4m Umeme since its creation, while over 30 communicated extensively to rural rural electrification schemes have been populations through radio bulletins, *Data for turnover, EBITDA and taxes is from 2007. connected to the Umeme grid. leaflets, community talks and newspaper articles. A far reaching schools education At the time of CDC’s investment in 2005, programme, featuring electrical safety Umeme’s climate change Umeme’s network was in a state of talks and advice, has also been contributions: disrepair as a result of historic implemented. In 2008, Umeme staff and underinvestment. The challenge and specialised safety experts visited 2,333 • Much of the electricity distributed by scale of turning the business around were schools throughout Uganda as part of Umeme comes from hydropower. This considerable and this was recognised this programme. Umeme’s public safety is a much cleaner source of power than from the outset. Consequently, over awareness raising campaign is continuing other alternatives, such as oil or coal the last four years, Umeme’s capital in 2009. expenditure programme of US$60m • The World Bank report “Catalysing has focused on upgrading and improving Upgrading and maintaining the network carbon investment for a low carbon key areas of the business. and its infrastructure is a continuous economy – World Bank progress on process. A further US$100m is earmarked renewable energy and energy efficiency The refurbishment and strengthening of to be invested in network restoration over 2007” lists Umeme as one of their the network has been central to CDC’s the next four years. energy efficiency projects. primary commitment to make the network safer. Falling power lines, caused by In economic terms, over 1,000 new jobs decades of underinvestment, have been have been created through contracts the cause of serious accidents, often fatal. with several experienced local Ugandan Power lines come down for a variety of engineering firms to carry out the reasons, the most common of which is refurbishment works on Umeme’s power that existing poles have decayed causing distribution network. the network to collapse or old cables to fall during the rainy season. Ugandan electricity consumers have benefited from the new investments in Before Umeme took over the concession the construction of new substations and of Uganda’s power distribution network, refurbishment of existing substations. the data regarding serious accidents was Improved customer billing systems and poor. However, there is anecdotal a readily available call centre have also evidence that there were about 30 fatal been introduced. 72 CDC Growth for development

Information & communication technologies (ICT)

Improvements in communications have a profound development impact, opening opportunities for businesses, communities and individuals in isolated and rural areas.

£83m CDC portfolio value The value of ICT for development the Democratic Republic of Congo (DRC), half of them broken. Information and communication 56 portfolio companies technologies (ICT) can help businesses ICT can bring critical health services and reach new customers and suppliers, education opportunities to people living in 23 countries access sources of finance and tap in remote areas. Financial services for into market information on prices and the poor are also increasingly available £9m invested by CDC customer preferences. Individuals can through the mobile phone network, connect to their families. People can substantially reducing the costs of credit in 2008 discover new opportunities. Access compared to traditional local providers to international knowledge about new of small loans. 58,000 people employed in technologies, events and trends is also important to fuel growth and The number of customers in India using the 42 portfolio companies development, as well as to promote GSM technology has now reached about which reported data in 20083 democratic processes. 290 million. Between February and March 2009, the figure rose by 11 million, An increase in telephone and internet the highest monthly addition of new US$342m in taxes paid by penetration is both directly and indirectly mobile GSM phone subscribers ever the 38 portfolio companies associated with economic growth. to any market.68 4 A study by the International Finance which reported data in 2008 Corporation (IFC) on the impact of mobile CDC’s investments in ICT phones in developing countries indicates that a 10% increase in telephone usage CDC was one of the first investors in the can lead to a direct GDP gain of 0.6% pan-African mobile telephony business and a larger indirect gain.9 Celtel in 1998, when there were only two million mobile phones in Africa. In Africa, fixed telephone line coverage Celtel brought mobile communication is only available to 1% of the population.9 technology to millions of Africans for the Much remains to be done to extend the first time. Africa is now the fastest growing full range of ICT access to poor countries, region in the world for mobile telephony, especially to sub-Saharan Africa and rural with at least 100 million mobile phones and isolated communities throughout the in operation throughout the continent. developing world. Until recently, there When CDC’s fund manager Actis sold were only 3,000 fixed telephone lines in its investment in Celtel in 2005, Celtel

CDC’s fund managers have investments in ICT companies in 23 countries

CDC’s portfolio company Chapter 7 – Industry sector reviews and SME funds 73

covered 30% of Africa’s population with With over 20,000 telecom towers and expand into Ghana, Côte d’Ivoire and provision of mobile phone services associated facilities, the expanding Indian Sierra Leone. through 13 different operating companies. wireless infrastructure provider Bharti Celtel at the time served eight million Infratel Industries is expanding rapidly with CDC’s fund manager Avigo has invested customers, employed 3,500 people in a focus on rural India with an investment in Comat Technologies, an Indian ICT high quality jobs, and supported some from CDC’s fund manager AIF Capital. company. Comat serves primarily rural 30,000 indirect jobs. Celtel helped create areas using kiosks to provide internet a new cadre of African leaders through CDC’s second largest Indian investment access together with information on training top employee teams at the in ICT through the fund manager Baring crops and cattle, healthcare and financial London Business School. The company’s Private Equity Partners India, MphasiS services. Government ration cards and founder, Dr Mo Ibrahim, now runs his own offers IT solutions to companies across food coupons are also available at the charitable foundation focusing on good different industries, including financial kiosks, as well as information about governance and leadership in Africa. services, logistics, telecom, technology and educational courses, mobile phone Celtel’s success has shown that it is retail. The company is expanding rapidly top-ups and railway tickets. possible to thrive doing business in and grew by 124% from 2003 to 2008. sub-Saharan Africa by working in an CDC is invested in MTN-CI, through its efficient, responsible and ethical way. Entrepreneurs in poor countries can also fund manager ECP, which is the leading be innovators of ICT solutions. CDC’s mobile phone company in Côte d’Ivoire. CDC’s ICT investments include large investment portfolio includes promising MTN-CI has almost three million businesses in wireless telecommunication examples of local innovation for the subscribers and employs 580 people. Its services and infrastructure as well benefit of poor countries. ETranzact, a mobile telephony products are distributed as small and innovative ICT start-ups. Nigerian ICT company with an investment through a network of over 200 wholesale CDC’s fund managers have substantial from CDC’s fund manager African Capital dealers and 60,000 independent resellers investments in companies driving the Alliance, has developed a new platform in Côte d’Ivoire providing high quality Nigerian mobile telephony revolution for payments over the mobile phone. employee opportunities in this post- through MTN Nigeria, Starcomms (an ETranzact’s technology gives poor and conflict country.69 investment successfully exited by CDC’s previously unbanked people access to fund manager Actis in 2008) and Helios payment services, allowing them to In Papua New Guinea (PNG), Data Nets Towers. MTN is currently rapidly rolling pursue new economic opportunities. is one of only four companies providing out coverage to other countries in West ETranzact’s technology also has a positive internet access and solutions to local Africa, including Cameroun and the DRC. gender dimension as it is much safer for businesses. Internet penetration in PNG CDC’s fund manager Helios has also women in Nigeria to make payments over is currently among the lowest in the world, invested in Africa Tel, which is extending the mobile phone than to carry cash or go 1.5%, which Data Nets is committed to mobile telephony access across Angola. to a bank withdrawal point. With VISA, expand. With an investment from CDC’s In India, CDC’s fund managers have Mastercard and other credit card fund manager Aureos, Data Nets is invested in several ICT companies, companies absent from Nigeria, the currently expanding its services to include including Bharti Infratel Industries, which demand for non-cash payment systems is disaster recovery, internet hotspots, home is rapidly rolling out increased wireless substantial and ETranzact rapidly acquired wireless products and controlled internet coverage across India, and MphasiS, five million users of its mobile cash access at schools. The internet an IT solution company. payment system. 1.5 million of ETranzacts connectivity for schools is expected to new customers did not previously have be provided at cost, as Data Nets’ CEO bank accounts. ETranzact now plans to views internet access for the young as a vital element in PNG’s social and economic development.

CDC’s largest investments in ICT5 Portfolio value by region (£m) Number of companies by region

6 1 Sub-Saharan Africa £33m 6 1 Sub-Saharan Africa 22 £37m Orascom Telecom, Algeria 2 China £1m 5 2 China 5 59 Wireless telecoms services 3 India £10m 4 3 India 15 4 Other Asia £3m 4 Other Asia 6 5 Latin America £5m 5 Latin America 4 £19m MTN Nigeria 6 North Africa £31m 3 6 North Africa 4 Wireless telecoms services70 5 1 1 4 3 2 2 £8m Africa Tel, Angola71 Diversified

£4m MphasiS Limited (XYZ Limited), India Software & services72

£3m Nextel, Brazil Wireless telecoms services73 74 CDC Growth for development

Financial services (excluding microfinance)

Businesses need financing to grow and prosper. Loans and other sources of finance are in short supply in many developing countries, especially in sub-Saharan Africa.

£151m CDC portfolio value The value of financial services have historically dominated provision of for development financial services in developing countries, privatisation of financial institutions and 156 portfolio companies Vast swathes of land in rural areas are their deregulation has been widely underserved by banks. In Uganda, for implemented and provides the basis for in 29 countries example, only 15% of households save expansion of more efficient and expansive in financial institutions.74 Lack of access privately run financial services institutions. £116m invested by CDC to finance for businesses in developing Privatisations have led to increased countries is commonly realised as one effectiveness of financial service in 2008 of the most important barriers to growth. institutions in poor countries and Where credit is available, it is often increased availability of financial services 74,000 people employed prohibitively costly. Commercial loans for for new and growing businesses. governments are also heavily constrained, Increased diversity of financial institutions in the 112 portfolio reducing flexibility for public investment. also serves to improve transparency, with companies which reported fewer instances of corruption. data in 20083 Financial institutions fuel economic growth and private sector development Financial services in rural areas still rely by helping to allocate financial resources heavily on the informal sector, where US$280m in taxes paid by where they are the most productive. village money lenders can often charge Numerous empirical studies have shown extraordinarily high interest rates. In such the 46 portfolio companies that the deepening of the financial settings, expanding the reach of which reported data in 20084 services sector leads to higher rates of competitive services through local capital accumulation and higher levels intermediaries can greatly improve of per capita income. The financial sector affordable access to business and can stimulate poverty reduction by personal loans. mobilising savings for productive investments, facilitating remittances CDC’s investments in financial services from abroad and enabling secure savings and insurance.75 CDC’s major investments in financial services, through its fund managers, Banks and other financial institutions include DFCU, a finance provider to are a major source of relatively high-skill enterprises in Uganda; Diamond Bank, a employment and tax revenues for local leading Nigerian bank; Alexander Forbes’s governments. While state-owned banks subsidiary in South Africa; the National

CDC’s fund managers have investments in financial services (excluding microfinance) in 29 countries

Investments Chapter 7 – Industry sector reviews and SME funds 75

Stock Exchange of India, and Equity broking, employee benefit administration, Microfinance Institution in Africa in 2007 Bank, a rapidly growing bank in East Africa. actuarial services, asset management by Micro Capital and the Financial Times/ consulting, multi-management investment IFC Sustainable Banking Award for Africa With 45 years of provision of financial services and alternative risk finance and and the Middle East in 2009. services, the Development Finance underwriting solutions.79 CDC was a direct Corporation of Uganda (DFCU) is investor in Alexander Forbes’ expansion Ecobank, with an investment from CDC’s associated with many of Uganda’s into Africa. CDC’s fund manager Actis fund manager ECP, was the first privately- success stories in education, healthcare currently manages CDC’s investment in owned regional commercial banking services, manufacturing and agro- Alexander Forbes’ South African institution in West Africa. Since it launched processing. CDC cofounded DFCU subsidiary. Alexander Forbes in South its first subsidiary in Togo in 1988, together with the Ugandan government in Africa has funded activities to provide Ecobank has grown to be the 15th largest 1964, and has since then played an active care for the elderly and the disabled, banking group in sub-Saharan Africa.69 investor role with strategic development HIV/AIDS prevention and treatment, advice.76 CDC’s investment in DFCU is support for female entrepreneurs, and Banque Commerciale du Rwanda currently managed by CDC’s fund environmental protection. CDC and has pioneered the extension of banking manager Actis. As Uganda’s largest Actis are presently closely tracking the services to previously unbanked sectors financial entity, and a leading player in consequences of allegations of of the Rwandan population with an Uganda’s economic development, DFCU mismanagement at Alexander Forbes. investment from CDC’s fund manager has been working over time to extend its Actis. Mobile banking vans and deposit reach to underserved communities Equity Bank was established in Kenya in accounts without minimum balance throughout the country. DFCU also 1982 as a building society to serve the requirements have greatly extended its allocates grants to community ‘unbanked’ and to provide products and reach. Banque Commerciale du Rwanda development programmes and sponsors services that economically empower its supports the charity sector by funding environmental conservation, sanitation customers. It is now the largest bank in hospital equipment and supporting services and provision of healthcare East Africa in terms of customer base, widows, orphans and other survivors services for the poor.77 with about 3.4 million account holders in of the 1994 genocide. Actis has worked Kenya and Uganda. The bank currently with Banque Commericale du Rwanda Founded in 1991, Diamond Bank is one opens around 3,000 new accounts each to improve corporate governance, staff of Nigeria’s leading banks. CDC was an day. Equity Bank’s diverse range of loan training and internal controls. The bank early investor in Diamond Bank. CDC’s products are targeted to specific needs has implemented CDC’s and Actis’ fund manager Actis took over the including SME loans, microfinance and business principles for responsible management of this investment in 2004. agribusiness loans. 70% of Equity Bank’s investment in its credit policy. Actis also Diamond Bank focuses on providing customers have never previously held a helped the bank to develop an anti-money access to finance for small and medium bank account. CDC’s fund manager laundering policy and to recruit staff with size enterprises (SMEs). The bank’s Helios provided an investment for further the right skills. corporate social responsibility activities growth for Equity Bank, in particular for include funding for HIV/AIDS programmes regional expansion and consolidation and efforts to address avoidable with other microfinance institutions. blindness. Diamond Bank also supports Equity Bank recently acquired Ugandan education programmes and other youth Microfinance Ltd and has opened development initiatives.78 a branch for microfinance services in Southern Sudan. Equity Bank has won Alexander Forbes is a leading provider numerous awards for innovation and of risk management services, insurance service delivery including Best

CDC’s largest investments Portfolio value by region (£m) Number of companies by region in financial services5

4 1 Sub-Saharan Africa £114m 4 1 Sub-Saharan Africa 110 2 3 3 2 Asia £29m 2 2 Asia 31 £37m DFCU, Uganda 3 Latin America £6m 3 Latin America 13 Diversified financial services34 4 North Africa £2m 4 North Africa 2 1 £32m Diamond Bank, Nigeria 1 Commercial banks36

£22m Alexander Forbes, South Africa Diversified financial services80

£10m National Stock Exchange of India, India Capital markets47

£8m Equity Bank, Kenya Commercial banks81 76 CDC Growth for development

Microfinance

Microcredit loans can help previously unbanked people create sustainable sources of income and move up the economic ladder.

£25m CDC portfolio value Microfinance institutions provide access CDC’s strategy for microfinance has to credit to the rural and urban unbanked been to invest in greenfield and early in developing countries. Marguerite expansion equity for commercial MFIs, 48 microfinance institutions Robinson, a microfinance specialist, committing over US$50m to microfinance describes microfinance as “small-scale equity funds. Over 60% of CDC’s equity in 26 countries financial services for both credits and investments in microfinance is for India, deposits that are provided to people which remains a focus for CDC’s £10m invested by CDC who farm or fish or herd; operate small microfinance investments. The remainder or micro-enterprises where goods are of CDC’s microfinance portfolio has in 2008 produced, recycled, repaired, or traded; a global orientation. CDC has also provide services; work for wages or committed U$30m to a microfinance local 27,000 people employed commissions; gain income from renting currency debt fund that directly addresses out small amounts of land, vehicles, draft the issue of currency risk MFIs face in in the 42 microfinance animals, or machinery and tools; and to relation to foreign debt funding. CDC’s institutions which reported other individuals and local groups in goal is to continue to support the data in 20083 developing countries, in both rural and microfinance sector primarily through urban areas.”82 Microfinance promotes existing fund managers, with a target social entrepreneurship and the ability of committing up to US$120m in new US$25m in taxes paid by to develop sustainable businesses for capital to MIVs by 2011. people subsidising at the “bottom of the the 24 microfinance pyramid”.83 Microfinance remains a commercially institutions which reported viable investment opportunity which is data in 20084 For a number of years, CDC has provided strongly aligned with CDC’s goals of high capital to microfinance investment development impact. CDC’s investments vehicles (MIVs) that have invested in include 48 different underlying MFIs, with underlying portfolios of microfinance a total portfolio value of £25m. CDC is institutions (MFIs) serving the poor invested in these 48 MFIs through six globally. With its new investment policy microfinance equity funds and one for 2009-2013, CDC continues to support local currency debt fund. 14 of the pioneering investment efforts in the microfinance institutions where CDC’s microfinance sector in low income capital is invested are located in sub- countries in sub-Saharan Africa and Saharan Africa. 31 are in Asia, with South Asia. 12 microfinance institutions supported by CDC’s capital in India. CDC also supports three microfinance institutions in Latin

CDC’s fund managers have microfinance investments in 26 countries

Investments Chapter 7 – Industry sector reviews and SME funds 77

America, with a combined portfolio value • Advans, which was set up to establish of £2m. New investments by CDC’s fund a network of greenfield MFIs primarily managers in microfinance institutions in francophone Africa and Asia. Advans amounted to £10m in 2008. is a lead shareholder in AMRET in Cambodia which is one of the leading A large number of people benefit from MFIs in the country serving over improved livelihoods from the loans 200,000 borrowers with a total loan provided by the microfinance institutions portfolio of US$54.5m. supplied by CDC’s capital. CDC is currently working with its microfinance • Catalyst, which was set up to build fund managers to receive more a network in Asia and Africa of highly accurate data on numbers of borrowers, efficient and rapidly growing MFIs the percentage of these borrowers primarily replicating the ASA that are women and whether these microfinance model from Bangladesh. borrowers live in rural areas that are traditionally underserved by financial • India Financial Inclusion Fund, which institutions. was set up to provide financing to Indian MFIs that are ready for Some examples of CDC’s investments expansion, with an emphasis in microfinance include: on rural cities and towns with low microfinance penetration. • Lok Capital, which delivers equity capital and capacity building to some of the poorest households in India.

• ShoreCap International, a global investor in microfinance through which CDC has invested in BRAC Bank in Bangladesh and, more recently, in BRAC Bank in Afghanistan.

• Access, which aims to build a network of microfinance banks in Africa and Central Asia. Access has successfully established AccessBanque Madagascar, which is the first large- scale bank in Madagascar specialising in providing financial services for microenterprises. In just over two years, the bank has built a customer base of 13,800 depositors and over 5,000 borrowers, expanded to six branches and employs over 200 people. More than half of its borrowers are women.

CDC’s largest investments Portfolio value by region (£m) Number of microfinance institutions in microfinance institutions5 with CDC investment by region

5 1 Sub-Saharan Africa £4m 4 2 China £1m 84 1 5 1 Sub-Saharan Africa 14 £2.5m MFBA, Azerbaijan 3 India £6m 4 2 4 Other Asia £12m 2 China 1 5 Latin America £2m 3 India 12 Equitas Micro India Private 4 Other Asia 18 £2.1m 5 Latin America 3 85 Limited, India 1 2 3

£1.9m A Little World Private Limited, 3 India86 78 CDC Growth for development

Brief industry sector reviews

Mining companies wishing to acquire new countries’ economies. Industry generates concessions or extend existing contracts. significant employment opportunities, £64m portfolio value including means for women to gain £17m invested in 2008 Provided that the multiple challenges of economic independence. Industrial 29 portfolio companies mining activities from the environmental, production often provides relatively secure 16 countries with CDC investments social and governance (ESG) perspectives and well-paid jobs compared to traditional 65,000 people employed in can be overcome, mining is a very sectors like agriculture. promising sector for investment and 21 portfolio companies which reported 3 an important vehicle for development Developing countries, led by China and data in 2008 and poverty alleviation. India, accounted for about 30% of the US$350m in taxes paid by world’s industrial production in 2008 19 portfolio companies which reported CDC provides the Extractive Industries compared to 16% in 1990.91 One of the data in 20084 Transparency Initiative (EITI) through its reasons behind the increasing share of fund managers investing in mining. developing countries in global industrial Mining involves exploration for new production is the shift of manufacturing natural resources and their subsequent At East Africa Gold Mines a mine locations, including assembly of final extraction, both of which generally require in Tanzania with an investment from products, from more expensive a great deal of capital. Mining extraction CDC’s fund manager African Lion and production locations in Europe, the United often provides a large number of job previous investment by Actis, States and Japan to developing countries opportunities, as well as substantial implementation of international good with lower wage levels. As foreign and concession, tax and royalty revenues practice standards across all areas of domestic companies in developing for governments. ESG matters was rigorous. Significantly, countries tap into the local labour markets the mine’s activities involved resettlement for increased industrial production, wages The development of mining operations of parts of the local community which was are gradually driven up and the people has spin-off benefits for local successfully managed. The company’s in these countries become wealthier. communities. These include development managing director was made an honorary and improvement of infrastructure such as local chieftain in recognition of his efforts. Until the recent global economic crisis, roads, power, water, and communications; East Africa Gold Mines also contributed fast growth in both Chinese and Indian provision of health and education to the local Tanzanian community through manufacturing sectors brought hundreds facilities; as well as the creation of the building of schools, hospitals and of millions of people out of the rural sector employment opportunities and training. other infrastructure. into wage paying jobs, lifting them and Companies developing or operating their families out of poverty. As domestic mining businesses may become involved Industry & materials demand increases with income levels, it in local community projects such as supplants exports as an engine of growth, building schools and hospitals. £127m portfolio value further reinforcing the cycle of economic £67m invested in 2008 growth and development. Mining can inflict severe damage on the 120 portfolio companies environment if appropriate safeguards 26 countries with CDC investments Dalmia Cement in India, with an are not followed. Mining jobs can also 106,000 people employed in investment from CDC’s fund manager be dangerous for workers, who may be Actis, has seen turnover grow by 62% in 101 portfolio companies which reported working without the benefit of proper 3 three years, with major further capacity employment contracts. Local data in 2008 close to coming on stream. With the communities can be adversely affected; US$244m in taxes paid by assistance of Actis, Dalmia has made sometimes entire villages are displaced 91 portfolio companies which reported major improvements in energy efficiency by mining operations. Mining sites can data in 20084 which has resulted in lower costs as well also encourage local criminality and as lower greenhouse gas emissions. It prostitution. Mining is furthermore prone Over the long term, industry accounts for a won the prestigious Greentech Excellence to corrupt payments to governments by large and fast-growing part of developing Award in 2008 for its efforts.92

CDC’s largest investments CDC’s largest investments in industry in mining5 & materials5

£27m Mozal, Mozambique £17m Alstom Electrical Industries, Metals and mining87 South Africa Industrials, commercial services and supplies93 £10m Mineral Deposits, Senegal Metals and mining88 £16m Savcio, South Africa Industrials, commercial services £10m Moepi Platinum Ltd, South Africa and supplies94 Metals and mining89

£7m Ceylon Oxygen, Sri Lanka £8m Copperbelt Minerals, Materials, chemicals95 Democratic Republic of Congo Metals and mining90 £5m TEMA, India Industrials, commercial services96 £5m Sinai Marble, Egypt Metals and mining61 Chapter 7 – Industry sector reviews and SME funds 79

Agribusiness In Kenya, Grain Bulk Handlers, where The production of consumer goods and CDC is invested through Actis the provision of services are major £49m portfolio value Agribusiness Fund, employs 175 skilled sources of employment for large numbers £25m invested in 2008 workers on a permanent basis and 750 of people all over the world, not least in 33 portfolio companies contracted labourers per day, operating poor countries. These opportunities apply 20 countries with CDC investments from Mombasa. The company provides to both men and women, with women 67,000 people employed in logistics solutions for grain cargo often highly represented in service sector 23 portfolio companies which reported transported within East and Central Africa. jobs. Livelihoods of large numbers of self- data in 20083 The company is widely considered to be employed people are also sustained from the most efficient bulk grain handling small sales activities of consumer products. US$179m in taxes paid by facility in Africa, and is capable of a daily 19 portfolio companies which reported 4 discharge rate from bulk grain vessels of The rapidly rising number of middle class data in 2008 over 10,000 tonnes. Grain Bulk Handlers households and youth across most of the Agricultural production, whether through is currently expanding its silo storage developing world are benefiting from the large scale plantations or subsistence capacity to over 150,000 tonnes, which increased availability of all kinds of goods farming, still accounts for a major share will bring many further employment and services. New retail outlets and malls 97 of the economy and livelihoods in most opportunities for the local population. allow firms to benefit from economies of poor countries. 34% of GDP and 64% The vision of the company’s CEO is to scale and reduce prices. With increased of employment in low income countries, make the port of Mombasa a hub for local production and imports both from on average, are accounted for by regional food trade as well as for OECD countries and local neighbouring 98 agribusiness – including production, emergency relief. countries, the increasing numbers of marketing, logistics, processing and consumers in developing countries are distribution of food supply.9 Much Consumer goods & services benefitting from increased choice and employment in agribusiness is, however, better quality of products of all types. neither well-paid nor secure. £152m portfolio value £59m invested in 2008 Deacons is a Kenyan retailer with an Given the right structures of land 119 portfolio companies investment from CDC’s fund manager ownership and functioning markets, 25 countries with CDC investments Aureos, which has played an important the key constraints for expansion of 211,000 people employed in role in moving sales of clothes and other agricultural production are likely to include 90 portfolio companies which reported consumer items from informal markets to retail stores. Deacons now sells clothing, finance for the development of new data in 20083 footwear, accessories and homewares companies and the implementation US$234m in taxes paid by of new technologies. Attention to through 19 stores across Kenya, Tanzania 84 portfolio companies which reported and Uganda and is a large and growing conservation, labour and working data in 20084 conditions and health and safety are tax contributor to the Kenyan public essential to ensure that agribusiness Domestic demand for all goods and purse. By partnering with a breast cancer and forestry minimise harm done to the services increases with income levels. awareness non-governmental environment and safeguard conditions In its October 2008 economic outlook organisation (NGO) to introduce cancer for workers and communities. Sustainable report, the International Monetary Fund screening alongside the female underwear agribusiness and forestry can have (IMF) forecasted that the gross domestic departments in its retail stores, Deacons important benefits for climate change product (GDP) of emerging and raised awareness of breast cancer and to counteract the release from industries developing economies, in purchasing achieved a huge surge in the sale of of greenhouse gases. power parity terms, would account for brassieres. It now controls 80% of the more than half of the global economy Kenyan formal market for female underwear. by 2013, up from 45% in 2008.104

CDC’s largest investments CDC’s largest investments in in agribusiness5 consumer goods & services5

£10m Kilombero Valley Teak, Tanzania £20m Fuel Logistics, South Africa Forestry99 Consumer, general105

£7m Grain Bulk Handlers, Kenya £18m Regal Forest, El Salvador, Farming100 Honduras, Guatemala and Nicaragua Consumer, durables and apparel106 £6m Equatoria Teak Company, Southern Sudan £16m UAC of Nigeria Forestry101 Consumer, non durables107

£5m Shuanghui International £9m Ambow, China 108 Holdings Ltd, China Consumer, general Food processing102 £10m Xiabu Xiabu, China £3m Thunnus Overseas SA France, Consumer, hotels, restaurants, leisure and travel109 Côte d’Ivoire Food staples and retailing103 80 CDC Growth for development

Brief industry sector reviews continued

Healthcare quality jobs and tax revenues for local Infrastructure governments. Women often hold jobs in £55m portfolio value the healthcare sector, serving as nurses, £80m portfolio value £17m invested in 2008 doctors and research and development £45m invested in 2008 26 portfolio companies staff at pharmaceutical laboratories. 42 portfolio companies 10 countries with CDC investments Investments in the healthcare sector 13 countries with CDC investments 42,000 people employed in thus serve multiple reinforcing 14,000 people employed in development goals. 22 portfolio companies which reported 28 portfolio companies which reported 3 3 data in 2008 Arch Pharmalabs is a pharmaceutical data in 2008 US$83m in taxes paid by company in India with an investment from US$123m in taxes paid by 19 portfolio companies which reported CDC’s fund manager ICICI. For its new 25 portfolio companies which reported data in 20084 and expanding drug production facilities, data in 20084 Arch Pharmalabs is working to bring Access to basic and more sophisticated production standard in line with United Transportation, telecommunication, real healthcare services is a crucial States Food and Drug Administration estate and other infrastructure assets component of social and economic (USFDA) standards, corresponding to the are basic drivers for economic growth. development. In 2007, less than half of highest in the pharmaceutical industry, Transportation infrastructure, including births in South Asia and sub-Saharan and to ensure that all operations are in roads, ports, railways, airports and Africa were attended by skilled healthcare line with top international environmental, services are critical for domestic and staff, compared with 99% for high-income health and safety practices. Whilst these international commerce. Expanding countries.110 Poor health and malnutrition changes have added significantly to mobile telephony services require prevent children from attending school production costs, Arch Pharmalabs investments in communication and from learning while there. The considers this investment to be a more infrastructure, extending the network equivalent of more than 200 million school than justifiable expense, as it is now a of masts and base stations to rural years are lost each year in poor countries producer of choice for a large number and remote areas. Businesses in as a result of ill health.111 of global pharmaceutical companies. developing countries face a limited For example, Arch Pharmalabs provides supply of quality and affordable office Public health services fall way short of intermediates for Pfizer’s blockbuster space, hindering efficient operations. meeting the needs of the populations in drug Lipitor and produces active most poor countries and more investment pharmaceutical ingredients for generic In sub-Saharan Africa, business losses is critically needed in private sector drugs for Sandoz, Glaxo SmithKline, due to deficient infrastructure are high, healthcare suppliers. The private health Sigma Tau, DSM and Elan. During a imposing uncompetitive cost burdens on sector has grown substantially in most meeting with CDC, Arch’s CEO explained: local companies. Productivity of African emerging markets in recent years, “Bringing our production standards up companies is estimated to be 10 to 20% with services to all income groups to USFDA level adds about 50% to our lower on average than comparable supplementing services provided by the costs. However, this is still only about Chinese businesses, mostly due to public sector. Public private partnerships 30% of what it would cost Pfizer to increased costs imposed by poor access are increasingly emerging, with improved produce in Europe or in the United States. to energy, transportation and other critical regulations, better licensing and quality and we can price accordingly. We are infrastructure.115 Lack of access to controls.9 The healthcare sector, including getting new business as fast as we transport is also considered to be a key hospitals, other healthcare service can acquire new production facilities obstacle to private sector led economic providers and pharmaceutical companies, and bring them up to international growth in developing countries.32 Roads is also an important provider of high- production standards”. in low income countries are often of poor

CDC’s largest investments CDC’s largest investments in healthcare5 in infrastructure5

£28m Paras Pharmaceuticals, India £17m Capital Properties, Tanzania Pharmaceuticals44 Real estate management116

£7m Amoun Pharmaceuticals, Egypt60 £16m Bharti Infratel Indus, India Pharmaceuticals Telecoms infrastructure45

£7m Harbin Partners, China £14m Helios Towers, Nigeria Pharmaceuticals112 Telecoms infrastructure117

£5m Sterling Addlife, India £9m ICH Properties Holdings Ltd, Ghana Healthcare providers and services113 Real estate management118

£4m Veeda Clinical Research, India £5m Chongqing Real Estate Biotechnology114 Development Co Ltd (Yingli), China Real estate management119 Chapter 7 – Industry sectors review and SME funds 81

quality or impassable. It is estimated that 99% uptime rate (compared with the solar photo-voltaics can provide efficient the 53 countries defined as low income current industry average of about 70%) and clean alternative sources of energy by the World Bank have just 239,000 ensures that the growing numbers of for poor or isolated communities, which kilometres of roads, whilst the 60 countries Nigerians that have access to mobile have not previously been connected to regarded as high income have 3.6 million phones can use these for business and traditional energy suppliers. kilometres.74 personal connections with less frequent cut-offs. Affordable innovations aimed at cleaning Infrastructure investment requirements sewage and industrial wastes, which are in poor countries, along with the need With the continued growth and increasing often discharged without treatment into for more efficient management of existing importance of mobile telephony in Nigeria open lots or waterways, can prevent infrastructure, are generally well beyond and sub-Saharan Africa, Helios Towers is damage to health and crops. Bringing what the public sector alone can afford. currently looking to expand its operations such technologies within the reach Goldman Sachs estimates that Africa’s into other parts of Africa. of poor countries can contribute infrastructure bill, excluding water and substantially to their sustainable sanitation, would reach a staggering Cleaner technologies development and improve the livelihoods US$1 trillion if current and future needs of poor people. were to be met by 2050. In India, £16m portfolio value approximately US$160bn has been £6m invested in 2008 Himin is a Chinese company with an invested in infrastructure during the past 8 portfolio companies investment from CDC’s fund manager five years. 25 to 30% of this amount 5 countries with CDC investments CDH which manufactures solar-powered represented investments by the private 2,200 people employed in water heaters. The technology is relatively simple and the product is affordable for sector. The Indian government estimates 5 portfolio companies which reported a need for a further US$320bn to $500bn most Chinese households. Himin is the data in 20083 of investment in infrastructure by 2012 to largest producer of solar water heaters support its growing economy. US$4m in taxes paid by in China, with 9% of the market. The 5 portfolio companies which reported company is aiming to achieve 20 to 30% Established in 2006, Helios Towers data in 20084 annual growth until 2015. This will involve Nigeria is an independent operator of doubling production capacity in the near mobile phone tower sites throughout Cleaner technologies are a fast growing term, which is currently 800,000 units per Nigeria. It builds and leases space on investment sector, thanks to the year. Himin’s main plant in Dezhou is a its towers to local operators, who in this increasing global awareness of the showcase for solar technology. Its plant way avoid the expense of developing and adverse impacts of human activity on the is ISO 9000 compliant, the international maintaining their own tower networks. environment. In 2008, revenues from standard for quality management companies focused on clean energy, systems. The company has funded CDC’s fund manager Helios has including solar power, wind power, biofuel, a vocational middle school, which supported the expansion of Helios Towers and hydropower, along with companies specialises in solar energy. in three separate rounds of financing and developing or marketing technologies to currently owns 27% of the business. reduce pollution from other energy CDC’s fund manager CDH has had a Helios Towers currently has over 400 sources, grew from US$76bn to long relationship with Himin, though its towers throughout Nigeria, with another US$116bn. Total global investments investment in the company occurred in 100 to be completed shortly. 500 more are in clean energy reached US$148bn 2008. CDH is helping Himin to tighten its planned for 2009. Helios Towers has best- in 2008.120 Projected investments of internal controls and to strengthen its top in-class operations and maintenance US$630bn by 2030 is estimated to management. With the substantial capital practices by African standards. Each site translate into about 20 million additional injection from CDH, Himin is well placed has back-up power generators to ensure jobs in the renewable energy sector.121 to consolidate its position in the Chinese a constant electricity supply to the towers, market and eventually become a world which is crucial in a country where black- The primary local energy resource of India leader in its sector. If it succeeds in doing outs are still common. Constant power and China is coal, the most polluting so, it will have played a part in improving supply ensures that antennas provide source of electricity when burned. air quality in China. service without interruption. Helios Towers’ Biofuels, wind power, hydro power and

CDC’s largest investments in cleaner technologies5

£10m Umeme, Uganda Energy distribution122

£5m Moser Baer, India Energy generation123

£2m DeQingYuan Agricultural Technology Co Ltd Agriculture124

£2m MyFuel Ltd, Malaysia Energy generation125

£1m PV Technologies India Ltd (a subsidiary of Moser Baer) Manufacturing/industrial126 82 CDC Growth for development

SME funds

Investments in emerging markets are predominately directed to larger businesses, where returns on invested capital are higher on an absolute scale and risks easier to assess. The lack of access to finance for SMEs is an important impediment to economic growth.

£57m CDC portfolio value* It is easier for larger firms to come into able to choose among the better contact with investors and management educated employment seekers. For most of large companies have more resources people that gain employment with SMEs, to demonstrate the type of information the alternative is casual labour. SMEs 170 portfolio companies investors need for their due diligence thereby provide a route out of the informal in 28 countries* before making an investment decision. labour market and poverty. Where SMEs Small and medium size enterprises are supported by institutional investors (SMEs) find it far more difficult to attract such as CDC, they often provide more £30m invested by CDC capital. Investors often find the time and extensive training to their workforce, in 2008 resources required to investigate an which benefits these workers directly investment opportunity in an SME and promote labour market mobility. disproportionately challenging SMEs frequently provide employment compared to the expected returns. opportunities in regions where large 18,000 people employed in companies do not find it worth their the 132 portfolio companies From a development perspective, while to expand. which reported data in 20083 the difficulty that SMEs experience in attracting capital is a lost opportunity, SMEs play a significant part in community as SMEs bring important social and development. A study conducted by the economic benefits. SMEs are tomorrow’s Small Enterprise Assistance Facility found US$84m in taxes paid by large companies but require capital to that every dollar invested in small the 60 portfolio companies invest in expansion to become engines of enterprises generated US$12 for the local which reported data in 20084 growth for their economies. SMEs in large economy.127 SMEs, because of their roots numbers are the backbone of a diversified in communities, are also a useful conduit economy, offering a range of choice in for disseminating socially responsible products and services for consumers. behaviour, such as good business The experiences of countries such as practice in relation to HIV/AIDS. South Korea and Vietnam demonstrate that thriving SMEs are associated with SMEs link different sectors of the rapidly growing economies. economy together as a significant part of the supply chain for large businesses. SMEs in poor countries are more likely Because of their smaller size, SMEs to provide employment opportunities for often demonstrate greater flexibility *Nine of Aureos’ 89 portfolio companies have been excluded from the count as they have more than 1000 employees each. These unskilled and semi-skilled labour than and capacity to innovate than large nine investee companies employ 47,000 people among them. larger companies, which generally are corporations.

CDC’s fund managers have SME investments in 28 countries

Investments Chapter 7 – Industry sectors review and SME funds 83

CDC’s investments in SME funds capital. In 2008, Aureos raised US$176m SME investments for a new Latin America fund and is Aureos Capital Partners CDC is a longstanding and active investor currently engaged in fundraising for in funds that specialise in investing a pan-Africa fund, which is expected 21 Aureos funds totaling US$984m in SMEs. to provide US$400m in new financing US$296m committed by CDC to for SMEs across the continent. Aureos’ funds CDC’s early contribution to SME Regions covered: Asia, (Pacific, South, development was in its pioneering work Following CDC’s change of investment South-East, Central, China), Africa, in establishing single country SME funds focus to that of fund-of-funds investor in (East, Southern, West), Latin America in the 1990s. CDC led the establishment 2004, CDC has been a founding investor of successful SME funds in Kenya, in several other SME funds including (Central and South) Zimbabwe and Zambia. Other SME Avigo in India and GroFin and Business funds that CDC set up were not equally Partners in Africa. These funds have Avigo SME Fund II successful from a financial perspective, together invested in 170 SMEs.128 Investment region: South Asia including early funds in Ghana and CDC commitment US$20m; Tanzania. However, these funds paved the total fund size US$125m way for a flow of successor SME funds and, more broadly, for the establishment GroFin Africa Fund of the private equity industry in Africa. Investment region: East, West and Southern Africa CDC’s SME fund investments in the CDC commitment US$30m; 1990s formed the platform for CDC’s most ambitious contribution to SME total fund size US$125m investment in the emerging markets, GroFin East Africa Fund which was the spin-out of Aureos in 2001 Investment region: East Africa from CDC’s investment team that focused CDC commitment US$3m; on SME investments. The creation of total fund size US$25m Aureos was a joint venture with Norfund, the development finance institution Business Partners International of Norway. Aureos’ staff came almost Kenya SME Fund entirely from CDC and were initially responsible for managing the SME funds Investment region: Kenya set up by CDC in Africa, Latin America CDC commitment US$2m; and the Pacific. Aureos raised its first total fund size US$14m regional SME fund in 2002, the Aureos Central America fund. Aureos then In China, CDC has committed to three progressed to establish further funds for venture capital funds, which invest East, West and Southern Africa, South seed capital for start-up businesses: Asia and South East Asia, thus providing Legend Capital, Qiming and Keytone. SME investing across the emerging markets with much needed growth

SMEs by region by value (£m) SMEs by region by number of companies

5 1 Sub-Saharan Africa £30m 5 1 Sub-Saharan Africa 116 2 India £10m 4 2 India 13 4 3 China £4m 3 China 3 4 Other Asia £6m 4 Other Asia 20 5 Latin America £7m 3 5 Latin America 18 3 2 2 1

1 84 CDC Growth for development

Aureos Capital Partners Aureos has integrated environmental and A large, important social initiative social criteria throughout its investment undertaken by Aureos relates to the Responsible investment process, from due diligence to monitoring promotion of HIV/AIDS policies and and reporting. Investment professionals programmes for SMEs to encourage practices lead to are trained in responsible investment prevention and provide treatment for improvements in practice using standards derived from workers. In 2007, Aureos initiated environmental and social CDC and the International Finance research to identify best practices among practices for SMEs Corporation (IFC). With Norfund and IFC, its portfolio companies in sub-Saharan Aureos has instituted an SME Sustainable Africa with respect to HIV/AIDS and to Opportunities Initiative, which provides find providers of services who could From small beginnings in 2001, Aureos financing for environmental and social help SMEs in the battle against HIV/AIDS has raised 15 regional funds and now improvements through concessionary as well as counteract the other major has in the range of US$1bn of funds loans and grants. The bulk of this facility pandemics malaria and tuberculosis. under management. On the back of its is earmarked for projects in clean energy, 14 best-practice companies were SME focus and a solid commercial track energy efficiency and carbon emissions’ selected and 150 suitably qualified record, Aureos has been able to attract reductions. The first use of this initiative healthcare providers were found. A review over 70 institutional investors in addition was in a project at the Athi River Steel of supply chain delivery systems was then to CDC and Norfund, including recently, smelting and manufacturing plant in conducted, focusing on how Aureos’ Colombian pension funds. Kenya in 2008 to reduce factory portfolio company distribution networks emissions. Aureos is currently examining could be leveraged to deliver healthcare Aureos has investments in over 50 the possibility of extending these goods and services to remote rural and countries, all over the developing world. improvements to another African high density urban populations. Six The company employs 85 investment portfolio company. individual supply chains were identified executives in 25 offices spread throughout through which condoms, malaria nets and Africa, Asia and Latin America. In the Aureos has launched two significant over-the-counter drugs could be delivered challenging field of SME investing in initiatives to build capacity in improved inexpensively throughout East Africa. emerging markets, the creation of a strong management of SME businesses and to Aureos’ effort is estimated to be able and credible private equity fund manager promote responsible SME practices with to reach over seven million people on a in such a relatively short time is an respect to HIV/AIDS. Aureos’ training weekly basis. Aureos is currently working impressive achievement. programme was established with the on extending its HIV/AIDS programme to support of the government of India and its investee companies, starting with its Aureos has been able to build its Norfund and in partnership with a group portfolio in Africa. investment business on a track record of top Indian business schools to provide of careful and market-orientated training for management in Aureos’ investment in SMEs. Its commercial portfolio companies. The courses in the drive is complemented by a strong programme focus on raising operational emphasis inherited from CDC on the efficiency and improving governance. So appropriate conduct of business in far, over 150 managers from SMEs across developing countries with regard to Aureos’ investment geographies have environmental, social and governance attended a series of seven courses. The (ESG) matters. benefits are clear: better management and, in the long run stronger businesses. Appendices

CDC’s Investment Code Performance indicators for CDC’s Monitoring and Evaluation system 86 CDC Growth for development

Appendix 1 CDC’s Investment Code

CDC’s mission is to generate wealth in emerging markets, particularly in poorer countries, by providing capital for investment in sustainable and responsibly managed private sector businesses.

CDC invests in the creation and growth of commercially viable private businesses in poor countries. Commercially sustainable businesses, supported by CDC, play a vital part in economic development: they employ and train people, pay taxes, invest in research and development, and build and operate infrastructure and services. This contributes to economic growth, which benefits poor people. CDC also mobilises private investment in these markets both directly and by demonstrating profitable investments.

Sustainable private sector development requires responsible business management of environmental, social and governance (“ESG”) matters. This Investment Code defines CDC’s principles, objectives, policies and management systems for sustainable and responsible investment with respect to ESG.1 It also includes an Exclusion List, which specifies businesses and activities in which CDC will not invest.2

1. Principles

CDC, and the businesses in which its capital is invested, will:

• comply with all applicable laws; • as appropriate, minimise adverse impacts and enhance positive effects on the environment, workers, and all stakeholders; • commit to continuous improvements with respect to management of the environment, social matters and governance; • work over time to apply relevant international best practice standards,3 with appropriate targets and timetables for achieving them; and • employ management systems which effectively address ESG risks and realise ESG opportunities as a fundamental part of a company’s value.

2. Objectives and policies

2a. The environment

Objectives

• To minimise adverse impacts and enhance positive effects on the environment, as relevant and appropriate, from the businesses in which CDC’s capital is invested. • To encourage the businesses in which CDC’s capital is invested to make efficient use of natural resources and to protect the environment wherever possible. • To support the reduction of greenhouse gas emissions which contribute to climate change from the businesses in which CDC’s capital is invested.4

Policy

Businesses in which CDC’s capital is invested will:

• operate in compliance with applicable local and national laws (as a minimum); • assess the environmental impact of their operations as follows: > identify potential risks and appropriate mitigating measures through an environmental impact assessment where business operations could involve loss of biodiversity or habitat, emission of significant quantities of greenhouse gases, severe degradation of water or air quality, substantial solid waste or other significant negative environmental impacts;5 and > consider the potential for positive environmental impacts from business activities; and • take appropriate actions to mitigate environmental risks, ameliorate environmental damage, and enhance positive effects as follows: > where an activity is assessed to present significant environmental risks, work over time to apply the relevant IFC policies and guidelines,6 if these are more stringent than local legislation, with appropriate targets and timetable for improvements; and > as appropriate, work over time towards international environmental best practice standards.7

1 CDC’s Investment Code is compatible with the 2006 International Finance Corporation (“IFC”) Policy and Performance Standards on Social and Environmental Sustainability (“IFC Performance Standards”). See www.ifc.org/ifcext/enviro.nsf/Content/PerformanceStandards. A Fund Manager that follows the IFC Performance Standards fulfils the requirements on the Environment and Social Matters set out in this Investment Code. The Investment Code is also compatible with the 2007 agreement for common environmental and social standards among the European Development Finance Institutions (“EDFI Rome Consensus”). 2 CDC’s Exclusion List is compatible with those of the IFC and the EDFI Rome Consensus. 3 As referenced in this Investment Code and as may develop over time. 4 In line with the 1994 United Nation Framework Convention on Climate Change and the associated 2005 Kyoto Protocol (“UN Framework Convention”), see www.unfccc.int/2860.php as may be amended from time to time. Appendix 1 87

2b. Social matters 2b.i. Labour and working conditions

Objectives

• To require the businesses in which CDC’s capital is invested to treat all their employees and contractors fairly and to respect their dignity, well-being and diversity. • To encourage the businesses in which CDC’s capital is invested to work over time towards full compliance with the International Labour Organisation (“ILO”) Fundamental Conventions8 and with the United Nations (“UN”) Universal Declaration of Human Rights.9

Policy

Businesses in which CDC’s capital is invested will:

• comply with applicable local and national laws (as a minimum); • not employ or make use of forced labour of any kind; • not employ or make use of harmful child labour;10 • pay wages which meet or exceed industry or legal national minima; • treat their employees fairly in terms of recruitment, progression, terms and conditions of work and representation, irrespective of gender, race, colour, disability, political opinion, sexual orientation, age, religion, social or ethnic origin, or HIV status; • allow consultative work-place structures and associations which provide employees with an opportunity to present their views to management; and • for remote operations involving the relocation of employees for extended periods of time, ensure that such employees have access to adequate housing and basic services.

2b.ii. Health and safety

Objectives

• To attain safe and healthy working conditions for employees and contractors of the businesses in which CDC’s capital is invested. • To safeguard the health and safety of all those affected by the businesses in which CDC’s capital is invested.

Policy

Businesses in which CDC’s capital is invested will:

• comply with applicable local and national laws (as a minimum); • assess the health and safety risks arising from work activities; and • take appropriate actions to eliminate or reduce risks to health and safety as follows: > where an activity is assessed to present significant health and safety risks,11 work over time to apply the relevant IFC policies and guidelines,12 if these are more stringent than local legislation, with appropriate targets and timetable for improvements; and > as appropriate, work over time towards international best practice standards for health and safety.13

5 Activities with potential significant adverse environmental impacts that are diverse, irreversible or unprecedented; mindful of potential cumulative, secondary or synergistic impacts that may occur as a consequence. 6 The IFC Performance Standards and the 2007 IFC Environmental, Health and Safety Guidelines (“IFC EHS Guidelines”), as may be amended from time to time and adopted by CDC. IFC EHS Guidelines include general guidelines and industry sector guidelines for forestry, agribusiness/food production (including fisheries), general manufacturing, oil and gas, infrastructure, chemicals (including pharmaceuticals), mining and power. See www.ifc.org/ifcext/enviro.nsf/Content/PerformanceStandards and www.ifc.org/ifcext/policyreview.nsf/Content/EHSGuidelinesUpdate. 7 Including the range of internationally certifiable environmental standards issued by the International Organization for Standardization (“ISO”), the ISO 14000 series, notably including standards for environmental management systems (ISO 14001) and greenhouse gas emissions (ISO 14064-65), as may be amended from time to time. See www.iso.org. 8 The ILO Fundamental Conventions are the Conventions on Freedom of Association and Collective Bargaining; Forced Labour; Child Labour; and Non-Discrimination, as may be amended from time to time. See www.ilo.org/ilolex/english/docs/declworld.htm for the texts of these Conventions and a list of the countries that have ratified each of them. 9 See www.un.org/Overview/rights.html. 10 As defined by the ILO C138 Minimum Age Convention from 1973 and the ILO C182 Worst Forms of Child Labour Convention from 1999. See www.ilo.org/ilolex/english/docs/declworld.htm 11 Activities that could have a severe health or safety impact for workers or affected communities. 12 The IFC Performance Standards and the IFC EHS Guidelines, as may be amended from time to time and adopted by CDC. See www.ifc.org/ifcext/enviro.nsf/Content/ PerformanceStandards and www.ifc.org/ifcext/policyreview.nsf/Content/ EHSGuidelinesUpdate. 13 Including OHSAS 18001, the international occupational health and safety management system specification, and industry specific international good practice standards related to the safety of product use, e.g. the international Good Manufacturing Practice (“GMP”) standards for food and pharmaceutical products promoted by the World Health Organization (“WHO”), see www.who.org. 88 CDC Growth for development

2b.iii. Other social matters

Objectives

• To be objective, consistent and fair with all stakeholders of the businesses in which CDC’s capital is invested. • To recognise and, as appropriate, promote the social development impact from the businesses in which CDC’s capital is invested.

Policies

Businesses in which CDC’s capital is invested will:

• take account of their impact on employees, contractors, the local community and all others affected by their operations as follows: > identify potential adverse effects and appropriate mitigating measures through a social impact assessment in cases involving resettlement, critical cultural heritage, indigenous peoples, non-local labour or other issues where the negative impact could be significant;14 and > consider social development contributions; and • take appropriate actions to mitigate risks, ameliorate negative impacts, and enhance positive effects.15

2c. Governance: Business integrity and good corporate governance

Objectives

• To ensure that CDC, and the businesses in which CDC’s capital is invested, exhibit honesty, integrity, fairness, diligence and respect in all business dealings. • To enhance the good reputation of CDC. • To promote international best practice in relation to corporate governance in the businesses in which CDC’s capital is invested.16

Policy

CDC, and the businesses in which CDC’s capital is invested, will:

• comply with all applicable laws and promote international best practice,17 including those laws and international best practice standards intended to prevent extortion, bribery and financial crime; • uphold high standards of business integrity and honesty; • deal with regulators in an open and co-operative manner; • prohibit all employees from making or receiving gifts of substance in the course of business; • prohibit the making of payments as improper inducement to confer preferential treatment; • prohibit contributions to political parties or political candidates, where these could constitute conflicts of interest; • properly record, report and review financial and tax information;18 • promote transparency and accountability grounded in sound business ethics; • use information received from its partners only in the best interests of the business relationship and not for personal financial gain by any employee; • clearly define responsibilities, procedures and controls with appropriate checks and balances in company management structures; and • use effective systems of internal control and risk management covering all significant issues, including environmental, social and ethical issues.

14 Activities with potential significant adverse social impacts that are diverse, irreversible or unprecedented. 15 As relevant, by applying IFC Performance Standards on Land Acquisition and Involuntary Resettlement; Indigenous Peoples; and Cultural Heritage; as may be amended from time to time and adopted by CDC. See www.ifc.org/ifcext/enviro.nsf/Content/PerformanceStandards. 16 Including the 2004 Organisation for Economic Cooperation and Development (“OECD”) Principles of Corporate Governance, as may be amended from time to time. See www.oecd.org. 17 Including the 2005 UN Anti-Corruption Convention, see www.unodc.org/unodc/en/treaties/CAC/index.html; the 1997 OECD Anti-Bribery Convention, see www.oecd.org; and, as relevant, the 2005 Extractive Industries Transparency Initiative (“EITI”), see www.eitransparency.org; as may be amended from time to time. 18 CDC promotes the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), see www.iasb.org; and the International Private Equity and Venture Capital Valuation Guidelines (“IPEVC”), see www.privateequityvaluation.com. Appendix 1 89

3. Exclusions

CDC’s capital will not be invested in the following businesses or activities:

• production of or trade in any product or activity deemed illegal under applicable local or national laws or regulations, or banned by global conventions and agreements, such as certain: > hazardous chemicals, pesticides and wastes;19 > ozone depleting substances;20 and > endangered or protected wildlife or wildlife products;21 • production of or trade in arms, i.e., weapons, munitions or nuclear products, primarily designed or primarily designated for military purposes; or • production of, use of or trade in unbonded asbestos fibres.22

CDC’s capital will not be invested in businesses for which the following activities or products are, or are intended to be, a significant source of revenue:

• gambling; • pornography; or • tobacco or tobacco related products.23

4. Management systems for CDC’s fund managers24

In order to implement CDC’s Investment Code effectively, CDC requires its Fund Managers to enter into a formal agreement pursuant to which each Fund Manager commits to an investment undertaking similar in substance to sections 1 – 4 of this Investment Code.25

Where Fund Managers have effective control or significant influence over portfolio companies,26 CDC requires its Fund Managers to procure that such portfolio companies sign an undertaking confirming that they will operate in line with sections 1 – 3 of this Investment Code.

CDC also requires its Fund Managers to establish and maintain ESG management systems27 which:

• assess the impact of all new investments on ESG matters as an integral part of the investment appraisal process; • give new investments a risk rating on ESG issues to determine the appropriate level of management and monitoring; • if an investment is made despite identified shortcomings in relation to ESG issues, or if any issues would arise during the investment period, assist the portfolio company concerned to develop an action plan to address such issues, with appropriate targets and timetable for improvements; • encourage the managers of portfolio companies to work towards continuous improvements in these areas, with targets for improvements as appropriate; • encourage the managers of portfolio companies to adopt and implement policies relating to ESG matters, particularly where businesses entail significant risks; • monitor portfolio companies’ performance on ESG matters and their progress towards relevant action plans and targets for improvements; • monitor and record incidents involving portfolio companies that result in loss of life, material effect on the environment, or material breach of law, and promote appropriate corrective actions; and • consider sections 1 – 3 of this Investment Code in all investment and divestment activities.

19 Including those specified in the 2004 Stockholm Convention on Persistent Organic Pollutants (“POPs”), see www.pops.int; the 2004 Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade, see www.pic.int; and the 1992 Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, see www.basel.int; as may be amended from time to time. 20 As covered in the 1999 Montreal Protocol on Substances that Deplete the Ozone Layer, see www.ozone.unep.org, as may be amended from time to time. 21 As covered in the 1975 Convention on International Trade in Endangered Species or Wild Flora and Fauna (“CITES”), see www.cites.org, as may be amended from time to time. 22 This does not apply to purchase and use of bonded asbestos cement sheeting where the asbestos content is less than 20%. 23 Except, in the case of tobacco production only, with an appropriate timeframe for phase-out. 24 For the purposes of the Investment Code, “Fund Manager” means (i) investment fund managers managing capital on behalf of CDC; (ii) financial institutions managing and/or investing capital on behalf of CDC; and (iii) other intermediated institutions managing and/or investing capital on behalf of CDC. 25 By side letter or equivalent agreement. An example of the standard CDC side letter agreement is available on CDC’s website. See www.cdcgroup.com. 26 A Fund Manager will be deemed to have significant influence over a portfolio company where its fund has (i) an ownership interest in the portfolio company in excess of 20%, which is presumed to be a level that allows for participation in the financial and operating policies of a portfolio company (if the percentage is lower but gives rise to the same participation, this will also meet the definition of significant influence); or (ii) board representation to a level that allows for participation in determining the financial and operating policies of the portfolio company; or (iii) rights to influence the financial and operating policy decisions of the portfolio company pursuant to a shareholders’ or similar agreement. 27 Further guidance on ESG management systems and assessments is provided in CDC’s Toolkit for Fund Managers, see www.cdcgroup.com. Guidance on environmental and social management systems and assessments is provided in IFC Performance Standard 1, see www.ifc.org/ifcext/enviro.nsf/Content/ PerformanceStandards. ISO 14001 is a certifiable international standard to help organisations minimise how their operations negatively affect the environment, see www.iso.org. 90 CDC Growth for development

To demonstrate the implementation of this Investment Code, CDC requires its Fund Managers to:

• report annually on the implementation of their ESG management systems and on the performance of portfolio companies against sections 1 – 3 of this Investment Code in a format acceptable to CDC;28 • set targets for improvements where appropriate; and • as soon as possible inform CDC about incidents involving portfolio companies that result in loss of life, material effect on the environment, or material breach of law, and any corrective actions taken.

5. Management systems for CDC

CDC will:

• assist its Fund Managers as appropriate to establish and maintain ESG management systems; • monitor the implementation of the Investment Code through its Fund Managers’ annual reports, with verifications as appropriate; • evaluate its Fund Managers’ implementation of the Investment Code periodically, using internal and external sources as appropriate, usually: > at the end of a fund’s investment period or the half-way point of the duration of a fund, which would typically be five years after a standard fund has commenced; and > at the end of the duration of a fund, which would typically be 10 years after a standard fund has commenced; • in instances where CDC invests directly and independently, establish and maintain ESG management systems substantially similar to those described above for its Fund Managers; • consider the cumulative effects of CDC’s investments with respect to the Investment Code and: > minimise adverse effects; > maximise development impact; and > promote synergies; • identify major risks and opportunities associated with climate change in investments and potential investments made by its Fund Managers and proactively promote through those Fund Managers the application of international best practice standards in the reduction of emissions of greenhouse gases;29 • incorporate lessons learned into CDC’s future investment strategy; • keep up-to-date on new developments with respect to relevant international agreements and best practice standards; and • review this Investment Code periodically to ensure its continuing suitability and effectiveness.

28 A suggested format for ESG reporting is available on CDC’s website, while other reporting formats could be acceptable. See www.cdcgroup.com. 29 In line with the UN Framework Convention, as may be amended from time to time, and including IFC Performance Standards, IFC EHS Guidelines, and ISO 14064-65, as may be amended from time to time and adopted by CDC. See www.unfccc.int/2860.php, www.ifc.org/ifcext/enviro.nsf/Content/PerformanceStandards, www.ifc.org/ifcext/policyreview.nsf/Content/EHSGuidelinesUpdate and www.iso.org. Appendix 2 91

Appendix 2 Performance Indicators for CDC’s Monitoring and Evaluation system

CDC considers the development outcome of each fund investment as the aggregate performance of four parameters:

1. Financial performance

CDC measures each fund’s ability to generate returns for investors and thereby attract commercial capital to poor countries.

The indicators for financial performance include:

• Net internal rate of return (IRR) of funds as compared to the investment target established by CDC at the time of investment. • IRR for each realised exit. • The total amount invested by the fund compared with the total amount committed to it, indicating whether the fund effectively managed to place all capital allocated to it.

The IRR target is recorded at the time of CDC’s investment. Current valuations and the realised returns from any sales of portfolio companies are monitored every quarter, and compiled for CDC’s annual financial results.

At the mid-point of a fund’s investment life, CDC assesses its current investments and, based on current valuations and projected future business performance of the fund’s portfolio companies, makes a judgment on how well a particular fund is performing against its investment target. This judgment is justified and recorded as a rating along CDC’s six-scale rating categories from excellent to poor.

At the end of a fund’s investment life, CDC evaluates the actual, realised returns of the fund compared to its investment target. At this point, CDC has information about the actual financial performance of the fund, as it will have sold all or most of its investee companies.

2. Economic Performance

CDC contributes to economic growth by investing in commercially viable businesses that generate employment and pay taxes. While financial performance measures returns for investors, economic performance captures the benefits of growing and profitable businesses for the wider economy.

CDC assesses the economic performance of each portfolio company by the following indicators, all of which are key parameters for a business to provide positive contributions to the broader local economy:

• Profitability and growth in profitability, as defined by earnings before interest, taxes, depreciation and amortisation (EBITDA). • Turnover growth. • Number of employees and growth in employment. • Taxes and other government payments.

CDC seeks to record data on these indicators for each portfolio company on an annual basis.

For evaluations, CDC looks at the number of portfolio companies that showed positive numbers and growth over time in profits, turnover, employment and taxes paid during the investment life and rates the performance of each fund investment accordingly.

Small and medium size enterprises (SME) by definition have lower absolute numbers on the above parameters than large companies, but are as important as larger companies for economic growth. SMEs also face greater difficulties in attracting investment capital, and are therefore an important investment target for CDC. When CDC rates its evaluation results, positive consideration is given to SMEs by granting funds investing in such relatively disadvantaged companies one category higher than they otherwise would have been rated. Positive consideration is also given to funds with investee companies explicitly serving low income markets and populations, as they can often, at least initially, expect to make relatively lower profits by doing so but make important development contributions to these economically disadvantaged groups. 92 CDC Growth for development

3. ESG Performance

For ESG performance, CDC asseses its fund managers’ abilities to promote responsible business practices with respect to the environment, social matters and governance (ESG) to their portfolio companies and the actual ESG performance of portfolio companies against CDC’s Investment Code.

At the date of investment, fund managers are to give each portfolio company a risk rating on ESG, indicating whether a company is considered to be high, medium or low risk from the environmental and social perspectives, and whether there are risks of business integrity issues and/or opportunities to improve corporate governance. CDC similarly records the quality of its fund managers ESG management systems when it invests with new funds, and works with fund managers to improve upon their practices with a particular focus on fund managers that invest in high-risk sectors from the ESG perspective.

Each year, CDC’s fund managers report to CDC how their portfolio companies perform on ESG matters against the action plans for improvements that fund managers should establish at the time of investment.

Indicators include:

• Issues and improvements for portfolio companies in each ESG area (environmental management, management of social matters including labour and working conditions, health and safety, and other social matters, and governance, including business integrity and corporate governance). • Quality of and improvements to the fund managers’ own ESG management systems

For funds that are particularly focused on investing in environmentally positive companies, for example cleaner technology funds, CDC seeks to record portfolio companies with such environmentally beneficial products and services. CDC also seeks to capture information about corporate social responsibility programmes and corporate outlays for community development programmes.

For mid-point evaluations, fund managers’ ESG systems are assessed along with the ESG performance of their portfolio companies. CDC notes any issues and discusses necessary improvements with fund managers as a result of these evaluations.

For final evaluations, usually 4-5 years after the mid-point evaluation, these matters are reviewed again to assess the extent to which improvements have been achieved.

4. Private sector development

For the final performance dimension, CDC seeks to capture how its investments benefit private sector development. This includes increased availability of capital for investment in poor countries; local capacity building to improve efficiency of capital markets; types of investments and exits to indicate efficiency of local capital markets; and funds and businesses that expands into multiple poor countries and regions. Furthermore, CDC seeks to capture wider enhancements to investment environments in terms of e.g., improved regulations, and, most importantly, enhancements to the sectors where portfolio companies operate which benefit consumers more broadly in terms of better access to improved quality goods, services and infrastructure. Appendix 2 93

Indicators include:

• Increased capital for investment in poor countries: > Amount of third party capital in funds (from development finance institutions (DFIs) and commercial investors) > Debt or other external financing raised by portfolio companies where such data is available

• Local capacity building: > Whether the fund manager is managing a private equity fund for the first time > Whether the fund manager is operating from an office in a developing country (or multiple local offices) > Whether the fund manager has been successful in raising a successor fund > Amount of commercial compared with DFI capital in successor funds

• More efficient capital markets: > Average holding period for portfolio companies > Type of investment, for example, growth capital, privatisation, expansion capital or start-up venture capital > Type of sale of the business, for example, a trade sale or a stock market listing

• Investment context: > Number of private equity firms in the local market at different points in time > Percent private equity investments as a share of GDP

• Improvements to the investment environment in terms of improved regulations, new, improved sector standards, etc.

• Improvements to the sectors where portfolio companies operate, broadly covering positive effects in terms of new or increased availability of improved quality goods and services, new infrastructure, new technologies, successful research and development, etc. Increased number of customers should be recorded wherever such information is available.

Information about third party capital and local capacity building is recorded at the time of CDC’s investment, and when new investors decide to commit to an existing fund. Information about the other, broader parameters for private sector development are captured as part of CDC’s evaluation work.

CDC Effectiveness: added value and catalytic effects

CDC also measures the extent to which CDC as an organisation is helping to attract commercial investors to poor countries and the added value CDC brings to fund managers in emerging markets by helping them shape their investment theses, recruit specialist staff, improve upon their ESG management systems or in other ways.

CDC records how it has worked to help new fund managers in various ways in the documents related to its investment decisions. CDC usually participates in advisory committees for its funds. As for all performance dimensions, an evaluation of CDC’s effectiveness is conducted at the mid-point of a fund’s duration and again at the end of each fund’s life. 94 CDC Growth for development

Footnotes

1 Low income countries are defined by CDC in accordance with the World Bank’s 2006 categorisation as those countries with Gross National Income (GNI) below US$905 per capital per annum. 2 Middle income countries are defined by CDC in accordance with the World Bank’s 2006 categorisation as those countries with Gross National Income (GNI) between US$905 and US$11,115 per capita per annum. 3 Employment data may be from different points in time. The data quoted in this report was provided by CDC’s fund managers in 2008. Some data may refer to contracted or in other ways non-permanent workers. 4 Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances data reported referred to taxes payable. The data quoted in this report mostly refers to taxes paid to local governments in 2007 and was provided by CDC’s fund managers in 2008. 5 Individual company investment values are quoted as per year end valuation 2008. Individual portfolio company valuations do not include CDC’s forward foreign exchange contracts for sterling versus US$ fluctuations. All aggregate portfolio data, e.g., by region or sector, reflect hedged positions. 6 Dollar and Kraay, (2001), "Growth is Good for the Poor", Policy and Research Working Paper, the World Bank. 7 Kraay, (2006), "When is Growth Pro-Poor? Evidence from a Panel of Countries", Journal of Economics, Vol 80, pp198-227. 8 “Global Monitoring Report” (2007), IBRD and the World Bank. 9 IFC “2008 Annual Report: Creating Opportunities”. 10 www.unctad.org 11 www.fdi.net 12 www.oecd.org 13 Academic research indicates associations between economic growth and poverty reduction, though the extent of the association varies greatly according to country circumstances. See ODI, 2008, “Pro-Poor Growth and Development”. Poverty reduction can not be constrained if the enabling social conditions for sharing the proceeds of growth are not in place, and may take many years to have a discernible impact. 14 Ray, Debraj (1998). “Development Economics”. Princeton: Princeton University Press. 15 According to comparable World Bank statistics using 2005 Purchasing Power Parity and $1.25/day poverty line. 16 An association of more than 20 international commercial banks which provide finance for projects in emerging markets. See www.equator-principles.com 17 According to the Roll Back Malaria partnership, www.rbm.who.int 18 107 out of 681 companies, 12 of the companies covered by one of the evaluations were in a fully exited fund which accordingly are no longer part of CDC’s current portfolio. 19 38 portfolio companies in India, six portfolio companies in China and 21 portfolio companies in other Asian countries. 20 The Best Practice and Development Committee, BPDC, which is composed of a sub-set of CDC’s board members and is chaired by Professor Jonathan Kydd. 21 As explained in the section “CDC’s new Monitoring and Evaluation (M&E) system”, development outcome is a collective, judgment based rating of each fund’s performance according to the four underlying performance dimensions financial performance, economic performance, ESG performance and private sector development. 22 The International Labour Organisation (ILO) “In search of a new indicator for labour market analysis: The labour dependency ratio and the labour dependency ratio+”, 23 Companies in the industry and materials sector, excluding mining. 24 EBITDA is an acronym of Earnings Before Interest, Taxes, Depreciation and Amortisation, and is a common accounting measure of corporate profitability. 25 Excluding the seven microfinance funds in CDC’s portfolio. 26 According to the Nigerian Communications Commission, www.ncc.gov.ng/index5.htm 27 World Bank website: “Regional brief sub-Saharan Africa”, www.worldbank.org 28 Employment data was reported by 190 of CDC’s 261 portfolio companies in sub-Saharan Africa during 2008. Data may be from different points in time. Some data may refer to contracted or in other ways non-permanent workers. 29 Tax data was reported by 100 of CDC’s 261 portfolio companies in sub-Saharan Africa during 2008. Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances the data reported referred to taxes payable. 30 2008 statistics from the International Labour Organisation (ILO), www,ilo.org 31 “Doing Business 2009”, World Bank and IFC publication. 32 Centre for Global Development: “Power and Roads for Africa”, 2008. 33 Actis Energy Fund 1 54% shareholding in Songas; CDC 100% share of Actis Energy Fund 1. 34 Actis Africa Fund 1 60% shareholding in DFCU; CDC 100% share of Actis Africa Fund 1. 35 Actis Infrastructure Fund 2 100% shareholding in Empower; CDC 100% share of Actis Infrastructure Fund 2. 36 Actis funds 15% shareholding in Diamond Bank, CDC 93% share of Actis Africa 2, 26% share of Actis Umbrella Fund and 10% share of Canadian Investment Fund for Africa. CDC shareholding 6% through co-investment. 37 Data on growth/decrease in employment, turnover and EBITDA was available for 47 of the 54 portfolio companies in sub-Saharan Africa that were included in the evaluations. 38 Employment data was reported by 281 of CDC’s 348 portfolio companies in Asia. Data may be from different points in time. Some data may refer to contracted or in other ways non-permanent workers. 39 Tax data was reported by 257 of CDC’s 348 portfolio companies in Asia. Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances the data reported referred to taxes payable. 40 “2009 World Development Indicators”, preliminary estimate as of November 2008, World Bank publication. 41 “2009 World Development Indicators”, World Bank publication. 42 Department for International Development website: Country profile, India. 43 World Bank poverty statistics. See graphs at p.7 of this report. 44 Actis 63% shareholding in Paras Pharmaceuticals; CDC 12% share of Actis Emerging Markets Fund 3, 31% share of Actis India Fund 2, 20% share of Actis India Fund 3 and 91% share of Actis South Asia Fund 2. 45 AIF Capital Asia III 0.3% shareholding in Bharti Infratel Indus; CDC 10% share of AIF Capital Asia III, CDC shareholding <1% through co-investment. 46 Actis 87% shareholding in Teknicast; CDC 70% share of Actis Asean Fund 2. and 26% share of Actis Umbrella Fund. 47 Actis funds 1% shareholding in the National Stock Exchange of India; CDC 31% share of Actis India Fund 2 and 91% share of Actis South Asia Fund 2. 48 Data on employment growth / decrease was available from 38 of the 65 portfolio companies in Asia covered by the evaluations. Data on turnover growth / decrease was available from 49 of the 65 portfolio companies. Data on EBITDA growth / decrease was reported by 50 of the 65 portfolio companies. 49 Employment data was reported by 24 of CDC’s 45 portfolio companies in Latin America. Data may be from different points in time. Some data may refer to contracted or in other ways non-permanent workers. 50 Tax data was reported by 22 of CDC’s 45 portfolio companies in Latin America. Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances the data reported referred to taxes payable. 51 Actis Latin America Fund 1 30% shareholding in Regal Forest; CDC 100% share in Actis Latin America Fund 1. 52 International Financial Participation Trust debt investment in Nextel Brazil; CDC 27% share in IFPT. 53 CDC though International Financial Participation Trust 10% shareholding in Capsa Diadem, CDC 27% share in IFPT. 54 “World Development Indicators 2008”, World Bank publication. 55 Employment data was reported by 19 of CDC’s 27 portfolio companies in North Africa during 2008. Data may be from different points in time. Some data may refer to contracted or in other ways non-permanent workers. 56 Tax data was reported by 12 of CDC’s 27 portfolio companies in North Africa during 2008. Most of CDC’s portfolio companies have reported corporate taxes paid but in some instances the tax data referred to taxes payable. 57 The countries of North Africa and the Middle East are often grouped together as there are many socio-economic similarities between the countries in these regions. World Bank data is aggregated across this region. 58 International Labour Organisation 2008 statistics for the Middle East and North Africa regions. 59 Actis Africa Fund 1 has a shareholding in Orascom; CDC 100% share of Actis Africa Fund 1. 60 CVCI Africa Fund LP has a shareholding in Amoun Pharmaceuticals; CDC 100% share of CVCI Africa Fund LP. 61 Actis total 60% shareholding in Sinai Marble; CDC 93% share of Actis Africa Fund 2, CDC 26% share of Actis Umbrella Fund & 10% share of Canadian Investment Fund for Africa. 62 The World Bank, “Energy Access”, www.worldbank.org 63 Jamal Saghir, director for energy, transport and water at the World Bank as quoted in a Reuters article; “Africa needs US$31bn a year for energy”. 64 www.songas.com 65 Global Environment Fund: “2008 Annual Environmental and Social Performance Report”. 66 Actis has a shareholding in WSP Holdings Ltd; CDC 40% share of Actis China Fund 2 and 26% share of Actis Umbrella Fund. 67 Actis 35% shareholding in Gulf of Guinea Energy Limited; CDC 93% share of Actis Africa Fund 2, 26% share of Actis Umbrella Fund and 10% share of Canadian Investment Fund for Africa. 68 According to data from the Indian mobile telephony industry organisation Cellular Operators Association of India, or COAI. 69 “Global Capital, Local Impact: Facilitating Africa’s Development One Company at the Time”, ECP Private Equity, 2008. 70 African Capital Alliance 3% shareholding in MTN Nigeria; CDC 33% share in CAPEM and 17% share in CAPE II. 71 Helios Investors 15% shareholding in Africa Tel, Angola; CDC 20% share in Helios Investors. 72 Baring India Private Equity Fund III 5% shareholding in MphasiS Limited; CDC 9% share of Baring India Private Equity Fund III. Footnotes 95

73 International Financial Participation Trust debt investment in Nextel Brazil; CDC 27% share in IFPT. 74 UNDP; “Creating value for all: Strategies for doing business with the poor” (July 2008). 75 DFID; “The Impact of the Financial Sector on Economic Development” Studies in Comparative International Development (SCID), 2007, and “The Importance of Financial Sector Development for Growth and Poverty Reduction”, 2004. 76 www.act.is 77 www.dfcugroup.com 78 www.diamondbank.com 79 www.alexanderforbes.co.za 80 Actis 12% shareholding in Alexander Forbes; CDC 93% share of Actis Africa Fund 2, 100% share of Actis Africa Empowerment Fund, 26% share of Actis Umbrella Fund and 10% share of Canadian Investment Fund for Africa: Ethos Private Equity Fund V LP. 81 Helios Investors LP 25% shareholding in Equity Bank, CDC 20% share of Helios Investors LP. 82 Robinson, Marguerite S, “Microfinance: the Paradigm Shift from Credit Delivery to Sustainable Financial Intermediation”, in Mwangi S Kimenyi, Robert C Wieland and J D Von Pischke (eds), 1998, “Strategic Issues in Microfinance”, Ashgate Publishing: Aldershot. 83 The ‘bottom of the pyramid’ is a common reference for the largest, and poorest socio-economic group. In global terms, this is the four billion people who live on less than US$2 per day, typically in developing countries. 84 Minlam Microfinance Offshore Fund debt investment in MFBA; CDC 49% share in Minlam Microfinance Offshore Fund: Access Bank debt investment in MFPB, CDC 16% share in Access Holdings AG. 85 India Financial Inclusion Fund debt investment in Equitas Micro India Private Limited; India, CDC 35% share of India Financial Inclusion Fund. 86 India Financial Inclusion Fund debt investment shareholding in a Little World Private Limited; CDC 35% share of India Financial Inclusion Fund. 87 Actis Assets Fund 1 debt investment in Mozal; CDC 100% share in Actis Assets Fund. 88 Actis Africa Fund 2 6% shareholding in Mineral Deposits; CDC 93% share of Actis Africa Fund 2: Canadian Investment Fund for Africa 2% shareholding in Mineral Deposits Limited; CDC 10% share of Canadian Investment Fund for Africa: African Lion 22% shareholding in Mineral Deposits Limited; CDC 16% share of African Lion 2: ECP Africa Fund II 5% shareholding in Mineral Deposits Limited; CDC 9% share of ECP Africa Fund II. 89 Actis Empowerment Fund debt investment in Moepi Platinum Ltd; CDC 100% share of Actis Empowerment Fund. 90 Actis Africa Fund 3 4% shareholding in Copperbelt Minerals: CDC 35% share of Actis Africa Fund 3: Actis Emerging Markets Fund 34% shareholding in Copperbelt Miinerals; CDC 12% share of Actis Emerging Markets Fund 3: African Lion 1 0.1% shareholding in Copperbelt Minerals; CDC 27% share of African Lion 1: African Lion 24% shareholding in Copperbelt Minerals; CDC 16% share of African Lion 2: African Lion 3% shareholding in Copperbelt Minerals; CDC 19% share of African Lion 3: CDC 3% shareholding via co-investment in Copperbelt Minerals. 91 According to the United Nations Industrial Development Organisation (UNIDO) www.unido.org 92 www.dalmiacement.com 93 Actis Africa Fund 3 16% shareholding in Alstom Electrical Industries; CDC 35% share of Actis Africa Fund 3: Actis Emerging Markets Fund 3 18% shareholding in Alstom Electrical Industries; CDC 12% share of Actis Emerging Markets Fund 3. 94 Actis 25% shareholding in Savcio; CDC 93% share of Actis Africa fund 2, 100% share of Actis Africa Empowerment Fund, 26% share of Actis Umbrella Fund, 10% share of Canadian Investment Fund for Africa: Sphere Fund 1 Partnership 4% shareholding in Savcio; CDC 5% share of Sphere Fund 1 Partnership. 95 Actis 88% shareholding in Ceylon Oxygen; CDC 91% share of Actis South Asia Fund 2 and 26% share of Actis Umbrella Fund. 96 Actis 35% shareholding in TEMA; CDC 91% share of Actis South Asia Fund 2, 31% share of Actis India Fund 2 and 26% share of Actis Umbrella Fund. 97 www.act.is 98 www.grainbulk.com 99 Actis Agribusiness Fund 77% shareholding in Kilombero Valley Teak; CDC 100% share of Actis Agribusiness Fund. 100 Actis Agribusiness Fund has a shareholding in Grain Bulk Handlers; CDC 100% share of Actis Agribusiness Fund. 101 Actis Agribusiness Fund 77% shareholding in Equatoria Teak Company; CDC 100% share of Actis Agribusiness Fund. 102 CDH China Fund III 10% shareholding in Shuanghui International Holdings; CDC 5% share in CDH China Fund III LP. 103 ECP Africa Fund III 21% shareholding in Thunnus Overseas AS France; CDC 23% share in ECP Africa Fund III. 104 www.imf.org 105 Actis 45% shareholding in Fuel Logistics; CDC 100% share of Actis Africa Empowerment Fund, 93% share of Actis Africa Fund 2, 26% share of Actis Umbrella Fund and 10% share of Canadian Investment Fund for Africa. 106 Actis Latin America Fund 1 30% shareholding in Regal Forest; CDC 100% share in Actis Latin America Fund 1. 107 Actis 10% shareholding in UAC of Nigeria: CDC 93% share of Actis Africa Fund 2, 26% share of Actis Umbrella Fund and 10% share of Canadian Investment Fund for Africa. 108 Actis funds 10% shareholding in Ambow: CDC 40% share of Actis China Fund 2, 51% share of Actis China Fund 3, 12% share in Actis Emerging Markets Fund 3 and 26% share of Actis Umbrella Fund. 109 Actis funds 51% shareholding in Xiabu Xiabu; CDC 40% share of Actis China Fund 2, 51% share of Actis China Fund 3, 12% share in Actis Emerging Markets Fund 3 and 26% share of Actis Umbrella Fund. 110 Global Data Monitoring Information System, the World Bank Group www.worldbank.org 111 Data from the World Bank www.worldbank.org 112 CITIC Capital China Partners Fund 1 16% shareholding in Harbin Pharmaceuticals; CDC 6% share of CITIC Capital China Partners Fund 1. 113 Actis funds 50% shareholding in Sterling Add-life; CDC 31% share of Actis India Fund 2, 91% share of Actis South Asia Fund 2, 26% share of Actis Umbrella Fund. 114 Actis 33% shareholding in Veeda Clinical Research; CDC 31% share of Actis India Fund 2, 91% share of Actis South Asia Fund 2, 26% share of Actis Umbrella Fund. 115 Global Economics Paper 174: “A Small Price to Pay: Financing Africa’s Infrastructure”, October 2008. 116 Actis 100% shareholding in Capital Properties; CDC 100% share of Actis Africa Real Estate Fund. 117 Helios Investors LP 15% shareholding in Helios Towers; CDC 20% share of Helios Investors LP. 118 Actis Fund 85% shareholding in ICH Properties Holdings Ltd; CDC 100% share of Actis Africa Real Estate Fund. 119 CMIA China Fund II 19% shareholding in Chongqing Real Estate Development Co Ltd; CDC 10% share of CMIA China Fund III. 120 ”Clean Energy Trends 2008”, The CleanEdge Report www.cleanedge.com 121 The International labour organisation (ILO), “Green jobs, Facts and Figures” www.ilo.org. 122 Actis 100% shareholding in Umeme: CDC 100% share of Actis Energy Fund 1. 123 CDC 2% shareholding in Moser Baer through co-investment. 124 Capital Today China Growth Fund LP 18% shareholding in DeQingYuan Agricultural Technology Co ltd; CDC 11% share in Capital Today China Growth Fund LP: Global Environmental Emerging Market Fund III 16% shareholding in DeQingYuan Agricultural Technology Co ltd; CDC 12% share of Global Environmental Emerging Market Fund III. 125 Kendall Court Mezzanine (Asia) Fund 1, LP 4% shareholding in MyFuel Ltd, CDC 30% share of Kendall Court Mezzanine (Asia) Fund 1, LP. 126 IDFC Private Equity (Mauritius) Fund II has a shareholding in PV Technologies India Ltd, CDC 6% share of IDFC Private Equity (Mauritius) Fund II. 127 “From poverty to prosperity: understanding the impact of investing in small and medium enterprises”, published by the Small Enterprise Assistance Facility. 128 Nine of Aureos’ 89 portfolio companies have been excluded from this count, as they employ more than 1000 employees. These nine large Aureos’ investee companies employ 47,000 people among them. 96 CDC Growth for development

Data disclaimer

Whilst we have used our reasonable Data on employment and taxes paid, as efforts to ensure the accuracy of data with all other data, in this report save for used in this report, certain data has not audited financial data, should be read as been audited or independently verified. indicative of magnitude rather than exact Most of the data has been provided to us figures. We have therefore rounded all by our fund managers. Fund managers data in a conservative manner. We have and portfolio companies have reviewed avoided extrapolations, which would the case studies specifically about them. show estimated data for CDC’s entire Some fund managers, including Actis portfolio, in order to keep quoted figures and Aureos, have commented more as close as possible to the information we substantially on the report. have received from our fund managers.

Data on employment and taxes paid has Unless otherwise stated the financial been received from many but not all of data and valuations contained in CDC’s portfolio companies. We have this report relate to the year ended received this data from the fund managers 31 December 2008. that have invested our capital (and the capital of others) in these businesses. Any errors or omissions are regrettable Data may be from different points in but, as with any report based on extensive time. Employment data may sometimes data received from third parties in include contract workers and other non- developing countries, difficult to avoid permanent workers. Tax data mostly entirely. CDC will continue to seek to refers to corporate taxes paid in 2007 improve its efforts to ensure data quality by CDC’s portfolio companies, but may and enrich its knowledge management sometimes refer to taxes payable systems in future. for 2008. Fund managers

Global Tuninvest ICICI Venture www.tuninvest.com www.icici.venture.com Actis Vantage Capital IDFC Private Equity www.act.is www.vantagecapital.co.za www.idfcpe.com Aureos India Value Fund Advisers www.aureos.com Microfinance www.ivfa.com Cordiant Capital Kotak Mahindra Group www.cordiantcap.com Access Holding www.accessholding.com www.kotak.com Global Environment Fund Lok Capital www.globalenvironmentfund.com Advans www.advansgroup.com www.lokcapital.com Africa Caspian Capital Partners New Silk Route Advisors www.caspianadvisors.com www.nsrpartners.com Adlevo Capital CMIMC Ventureast www.adlevocapital.com www.catalyst-microfinance.com www.ventureast.com Advanced Finance and Investment Group Minlam Asset Management www.afigfunds.com China www.minlam.com African Capital Alliance Shorecap International Capital Today www.aca-web.com www.shorecap.net www.capitaltoday.com African Lion CDH Investments www.afl.co.za Asia www.cdhfund.com Business Partners CITIC Capital www.businesspartners.co.za AIF Capital www.aifcapital.com www.citiccapital.com Citigroup Venture Capital International CMIA Capital Partners www.citigroupai.com Centras Capital Partners www.centrascapital.com www.cmia.com ECP Africa FountainVest Partners (Asia) www.ecpinvestment.com JS Private Equity www.js.com www.fountainvest.com Ethos Private Equity Keytone Capital Partners www.ethos.org.za Kendall Court www.kendallcourt.com – GroFin Legend Holdings www.grofin.com Lombard Investments www.lombardinvestments.com www.legendcapital.com.cn Horizon Equity Qiming Venture Partners www.horizonequity.co.za Navis Capital Partners www.naviscapital.com www.qimingventures.com Helios Investment Partners Tripod Capital International www.heliosinvestment.com Saratoga Capital www.saratogacapital.com www.tripodcapital.com I&P Management www.ip-mngt.com India Latin America Medu Capital www.meducapital.co.za Ambit Pragma Ventures Advent International Corporation www.ambitpragma.com www.adventinternational.com Sociéte Générale Asset Management www.sgam-ai.com Avigo Capital Partners Altra Investments www.avigocorp.com www.altrainvestments.com Sphere Holdings www.sphereholdings.co.za Baring Private Equity Partners India Nexxus Capital www.bpeindia.com www.nexxuscapital.com Travant Capital www.travantcapital.com BTS Investment Advisors Patria Banco De Negocios www.btsadvisors.com www.bancopatria.com.br CDC Group plc Cardinal Place Level 2 80 Victoria Street London SW1E 5JL

T: +44 (0)20 7963 4700 F: +44 (0)20 7963 4750 [email protected] www.cdcgroup.com