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Norwegian­Investment­Fund­for­Developing­Countries 2016 CONTENTS CONTENTS 20 years of investing for development 3 Message from the Chief Executive Officer 4 Development trends 1997–2017 6 A brief history of Norfund 8 Organisation 13 Board of directors 14 Norfund – an active, strategic, 08 minority investor 16 Strategic partnerships and investment platforms 25 Investing in underserved markets 26 37 Why go beyond aid and concessional borrowing 28 Portfolio and results 30 Portfolio 32 25 Results 34 Development effects 36 Gender equality 38 40 Exited companies 2016 39 Business areas 40 Clean Energy 42 Financial Institutions 48 Food and Agribusiness 54 SME funds 60 Key figures 66 Head office Phone: E-mail: Design & production NORFUND Oslo Norway +47 22 01 93 93 [email protected] Dinamo Address: Fax: Repro REPORT ON Internet: Fridtjof Nansens plass 4, +47 22 01 93 94 Dinamo www.norfund.no OPERATIONS 0160 Oslo, Norway Print 2016 Merkur Grafisk 2 NORFUND REPORT ON OPERATIONS 2016 20 YEARS OF INVESTING FOR DEVELOPMENT IN 1997, NORFUND – the Norwegian Investment Fund for Developing The fund’s investments have contributed directly to the development Countries – was established by the Norwegian Parliament. The purpose of sustainable businesses, job generation, tax­payments and to increased was to contribute to building sustainable commercial businesses in access to clean energy, risk capital and financial services in poor countries. developing countries. With Norfund, a new chapter was added to the Today, 770 companies with more than 276,000 employees are included Norwegian develop ment assistance policy; profitable industry and the Norfund portfolio. commerce was seen as a backbone of sustainable poverty alleviation. Norfund’s activities are based on the principles of Norway’s develop­ Norfund’s mandate is to be additional and catalytic. This means that ment cooperation policy. The graph below shows how Norfund through Norfund shall provide additional capital to poor countries beyond what good returns and annual capital allocations from Norway’s budget for would happen in the market place, and attract additional capital from development assistance has grown to be a significant investor in our private sources. For twenty years, Norfund has provided equity, other markets. risk capital, and loans to companies in countries where the need for capital is vast, and to industry sectors particularly important to develop­ ment. Norfund always invests jointly with partners, both Norwegian and non­Norwegian. 18 000 16 000 14 000 12 000 10 000 MNOK 8 000 6 000 4 000 2 000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Accumulated allocated capital Allocated capital this year Retained earnings Committed portfolio NORFUND REPORT ON OPERATIONS 2016 3 MESSAGE FROM THE MANAGING DIRECTOR A MESSAGE FROM 20 YEARS OF INVESTING FOR KJELL DEVELOPMENT ROLAND The Sustainable Development Goals, potential setbacks in trade and globalisation combined with more risk-averse western investors have Chief Executive Officer created a world with increasing need for development finance institutions. Thus, twenty years after its inception, Norfund’s role of supporting economic growth and development is more important than ever. Ideas about development have changed. In the 1960s and 1970s, transferring capital, building infrastructure, and pro­ viding technical expertise were seen as ways to kick­start growth. In the 1980s and 1990s, development was focused more on how best to introduce Western­style institutions and values, and leave infrastructure and jobs to the market. In 1995, the Norwegian North­South Aid Commission (NOU 1995:5) argued that Norwegian development aid policy needed a new tool to support productive sectors. The Norfund Act was subsequently approved by the Norwegian parliament in 1997. Since then, through annual capital allocations and good developmental and financial returns, Norfund has become a significant Development Finance Institution (DFI) in emerging markets. THE NEW AID ARCHITECTURE Development finance has evolved dramatically over the last decade. Policymakers have increasingly recognised the need for jobs, tax revenues and exports that earn hard currency. They understand that private sector and eco­ nomic growth are preconditions for sustainable poverty alleviation. 4 NORFUND REPORT ON OPERATIONS 2016 MESSAGE FROM THE MANAGING DIRECTOR Donor countries have scaled­up their capital allocations to MAJOR INVESTMENTS IN 2016 DFIs. Globally, total amount invested by all DFIs is now In 2016, Norfund’s largest investment was in the new equivalent to half of all official development assistance company Arise, formed through a partnership with (ODA). Norwegian governments have been a pioneer in Rabobank and FMO (the Dutch DFI). The purpose of this this regard, every year since inception increasing Norfund’s new investment company is to build a vibrant and solid capital base. The core capital injected so far is NOK 12.7 banking sector in Sub­Saharan Africa, and by doing so, billion. No dividends have ever been paid. Norfund has increase access to capital for SMEs and promote financial accumulated NOK 3.7 billion in profit, and on top of that, inclusion. we believe NOK 4.3 billion have been created in values that Another milestone occurred in 2016 when IFU (the will surface when projects are exited. Danish DFI) joined the Norwegian Microfinance Initiative DFIs, such as Norfund, are thereby different to all other (NMI). With IFU on board, the company was renamed aid, the money we invest can be redeployed in new projects, Nordic Microfinance Initiative and aims to become the again and again. leading Nordic investor in microfinance. A third milestone was achieved when Scatec Solar and FROM BILLIONS TO TRILLIONS … OR TO MILLIONS? KLP Norfund Invest AS signed a Power Purchase Agree­ The need to increase capital flow to poor countries, “from ment that secured the sale of solar power to the state­owned Billions to Trillions”, was the core message of the Third utility company, Electricidade de Mozambique (EDM). International Conference on Financing for Development Being able to build infrastructure in Mozambique in the held in Addis Ababa in 2015. It reflected the common under­ present political and economic environment is unique. The standing that the UN’s Sustainable Development Goals will planned 40 MW Mocuba solar power plant will be the first only be achieved if private investors make substantial invest­ of its kind in the country. ments. The global community needs to find ways to spend “billions” in aid to unleash “trillions” in private investments. A NORFUND BUZZ WORD: ADDITIONALITY However, we are not seeing this happening at scale. In Our mandate is to be additional by supplying capital and fact, capital flow to poor countries is declining and Western competence that is otherwise unavailable in poor countries banks are leaving Sub­Saharan Africa. The previous growth and difficult sectors. of Foreign Direct Investments (FDI) to developing countries Last year, Norfund invested 86 percent of our capital in has stopped. This is a paradox; Poor countries are desperately developing countries that are ranked as ‘difficult’ places to do short of capital, and can offer high interest rates and oppor­ business. By contrast, according to the World Bank, only 11 tunities for profitable investments. Yet, private investors are percent of foreign direct investments (FDI) were deployed turning back to western markets which are over­liquid and to such countries. (see page 26). where interest rates are close to, or even below, zero. The At a time when private investors are more reluctant to UK’s Brexit choice and Trump’s presidential victory in the invest in poor countries, the need for Norfund’s invest­ USA are signs that globalism may decline further. ments is growing. Norfund is an active, strategic minority provider of equity in developing countries. We are willing IS THE RISK TOO HIGH – IN NORWAY? to take high risks and pave the way for private investors. In Norway, the reluctance to invest in poor countries may be We will help turning the tide of private capital back to poor aggravated by the high risk of reputational damage when for­ countries by proving that it is possible and profitable, and by eign investments fail. Zero­tolerance for corruption is vital, buying down their risk as a partner with capital and skills. but zero tolerance for failures or wrong doing is damaging! Companies that are brave enough to invest in poor countries must be given the opportunity to learn from their mistakes and experiences. If we are to succeed in raising investment “from Billions to Trillions”, then the public and NGOs must support companies that are willing to invest in Kjell Roland developing countries. And, like in traditional aid programs, Chief Executive Officer accept that implementation is difficult and mistakes may happen. Trying to fight poverty is better than simply keep­ ing our investment focus at home. NORFUND REPORT ON OPERATIONS 2016 5 DEVELOPMENT TRENDS 1997-2017 DEVELOPMENT TRENDS 1997–2017 THE NUMBER OF PEOPLE LIVING IN EXTREME POVERTY HAS DROPPED BY 50% 1800 One of the UN’s eight Millennium 1600 Development Goals was to halve the number of people living in extreme poverty 1400 by 2015. This goal was achieved before 1200 the deadline. Poverty in Asia dropped substantially, but the number of people 1000 living in extreme poverty in Sub-Saharan 800 Africa has remained high. 600 living below $1.90 per day Number of people (millions) Number of 400 200 World excl. Sub-Saharan Africa Sub-Saharan Africa 0 1997 2006 2015 SUSTAINED ECONOMIC GROWTH HAS BEEN THE MAIN DRIVER OF POVERTY REDUCTION 10 % East Asia & Pacific 8 % China 6 % 4 % Latin America & Caribbean Middle East & South Asia 2 % North Africa India at USD 1.90 a day (1990 - 2012)) 0 % 0 % 2 % 4 % 6 % 8 % 10 % Poverty reduction (reduction in number of poor reduction (reduction in number of Poverty Sub-Saharan Africa -2 % Economic­growth­(average­annual­per­capita­GDP­growth,­1990-2012) Countries with the strongest economic growth, such as China and countries in East Asia, have achieved the largest declines in poverty.

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