Norwegian Investment Fund for Developing Countries Creates value Combats poverty Report on operations 2008 Norfund The Norwegian Investment Fund for Developing Countries – Norfund – was created by the Storting (parliament) in 1997. Its job is to contribute, through investment capital, loans and guarantees, to the development of profitable and sustainable business activities in countries which have limited access to commercial financing because they present a high level of risk. Norfund is a hybrid state-owned company established by law with limited liability, owned on behalf of the state by the Ministry of Foreign Affairs with Erik Solheim as the minister with constitutional responsibility. Its activities are conducted in accordance with the fundamental principles for Norwegian development cooperation. The board of directors is appointed by the government. • NorfuNd’s iNvestmeNts supported 248 000 jobs, half of them held by womeN • NoK 3.2 billioN was paid iN tax iN developiNg couNtries • 43 per ceNt of iNvestmeNt iN 2008 weNt to the least-developed couNtries (ldcs) • NorfuNd’s equity totalled NoK 5.3 billioN. 2 Norfund Report on operations 2008 Contents New investment agreements in 2008 4 Foreword 5 Events of the year 6 Part 1: Norfund explained 1.1 Mandate and strategy 8 1.2 Social and environmental responsibility 10 Part 2: Analysis of the portfolio 2.1 Geography: Africa and LDCs take priority 12 2.2 Development effects and climate 14 2.3 Key financial figures 15 Part 3: Investment areas 3.1 Overview 18 3.2 Renewable energy 20 3.3 Funds 23 3.4 Financial institutions 25 3.5 Other direct investments 27 3.6 Other activities 29 Part 4: Norfund’s bodies and external relations 4.1 Board of directors 31 4.2 Organisation 32 4.3 External relations 33 4.4 Communication 34 Definitions and abbreviations Norfund Report on operations 2008 3 New investment agreements in 2008 Total: NOK 1.4 billion 500 400 300 500 200 200 400 500 437 100 300 400 34 50 200 300 Asia 500 100 200 70 400 6 101 100 100 80 300 Central America 300 200 Africa 100 NMI* Funds Norfund Financial institutions SN Power Renewable energy Other direct investments Global *The Norwegian Microfinance Initiative (NMI) was established in 2008 and has yet to invest its capital. However, its investments will be concentrated in poor countries. 4 Norfund Report on operations 2008 Strong 2008 – demanding future We achieved a surprisingly good result in 2008, with The government’s Policy Coherence Commission substantial development effects in a difficult market. unanimously recommended in September that a fund One reason is that the financial crisis did not initially of NOK 10 billion would be created to invest in low- have a particularly strong effect on the countries in income countries with a special focus on Africa and the which we invest. On the other hand, the decline in the LDCs, channelled through us. Our subsequent report to real economy during 2009 will be far more deman- the Ministry of Finance proposed how such a fund can ding – increasing risk and reducing short-term be established in practice. At the same time, the report profitability in our investment markets. you now hold in your hands demonstrates that such investments can be made both profitable and sustaina- We had another year of good progress in 2008. New ble. I look forward to continued work on this proposal strategic investments were made in our core markets, in 2009. particularly sub-Saharan Africa. A new subsidiary for Combating poverty through profitable business clean energy was founded to increase supplies of development is an overarching goal for our invest- energy in Africa and Central America, and the Norwe- ments. We are proud to report a record number of jobs gian Microfinance Initiative (NMI) was established with derived from this spending, a gender-balanced work- private investors in Norway. force, and large tax payments to national and local Profitability is essential for ensuring that our invested government. In addition, we add value by improving capital creates viable companies as well as lasting value business management, including follow-up of environ- and development effects. It is also important for mental and social standards and prevention of corrup- convincing more Norwegian and international players tion. On the other hand, 2008 was a disappointing year to invest in poor developing countries. in HSE terms for two of our energy investments, with The highest possible profitability is not a goal in itself an unacceptable level of fatalities. Section 1.2 of this for Norfund, so we have not quantified a required rate report identifies both the opportunities and the of return. The return on the different parts of our limitations of our work on social responsibility. portfolio varies considerably. At the same time, risk in We have made a bigger commitment to Africa than the portfolio is growing – partly because our invest- ever since 2007, and the share of this continent in our ment is gradually being concentrated on fewer and investments increased sharply during 2008. Our focus poorer countries, particularly in Africa. on poverty is also illustrated by a rise in the LDC share Developing countries avoided the first shock from the of our new investment (including SN Power) from 34 financial meltdown in the USA during the autumn of per cent in 2007 to 43 per cent in 2008. 2008 because poor nations are not integrated with the Combating poverty through investment in the world’s global financial market. They are part of the world most difficult markets is no easy business. Major risks economy, however, and get hit all the harder when and many dilemmas are involved, and achieving results foreign investment dries up, money transfers from requires patience. Over 13 years, we have built up a family members abroad decline and revenues from unique professional expertise with such investment in exports and tourism fall. History also shows that Norway. We have regional offices in South Africa, Kenya development assistance often drops during economic and Costa Rica as well as substantial regional and downturns. Nor have the developing countries any international networks. We will be strengthening and financial reserves to spend on crisis packages – a lost exploiting these in the years to come. job is a tragedy for whole families which have no social security or other safety net. Enjoy this publication. We must therefore be prepared for the likelihood that 2009 will be demanding for the most important countries in which we work. Precisely for that reason, and precisely at this time, it is crucial that liquid investors such as ourselves do our job, invest counter- cyclically and are willing to accept higher risk. That Kjell Roland represents our role and our mandate, as presented in Managing director section 1.1 of this report. Norfund Report on operations 2008 5 Events of 2008 Norfund invests in northern mozambique’s Matanuska plantation, the first major initiative for banana exports from south-eastern Africa. The Norwegian Microfinance Initiative (NMI) is established as a groundbreaking public-private collaboration between Norfund (with 50 per cent), Dnb HRH Crown Prince Haakon Magnus Nor, ferd, Klp and storebrand. lays the foundation stone for sN power’s la confluencia hydropower station in the The Ministry of Foreign Affairs appoints a government Chilean Andes. commission on capital flight to investigate the role of secrecy jurisdictions (tax havens) in illegal transfers of Kabul Serena Hotel, part-owned by capital from and tax evasion in developing countries. Norfund, suffers a terrorist attack which affects the delegation accompanying Uganda Microfinance Ltd (UML) is sold to foreign minister jonas gahr støre. equity Bank Ltd in Kenya and is being further developed as a professional microbank with both lending and deposit-taking. January February March April May June Norfund celebrates its 10th anniversary and can report its best financial results since its creation as well as major unacceptable working conditions development effects. are exposed in bangladesh among sub-contractors to Norfund borrower The first payment is made by Norfund to the Grameen Phone. Norfund Bugoye hydropower station in uganda. This investigates hse supervision by project will increase the countries electricity the company and its owners. supplies with seven per cent. Norfund invests in the Blue Waters Growth Fund in Vietnam, which offers financing to SMEs. 6 Norfund Report on operations 2008 Norfund steps up its commitment to microfinance in Cambodia by investing in AMRET and Cambodian entrepreneur building as well as by Norfund invests in the production of cassava converting a loan to equity in hattha starch by Casquip Swaziland. Kaksekar. This enterprise focuses on sales to South africa’s paper and food industries. An investment agreement is concluded by Norfund with BRAC Africa, a large microfinance institution from bangladesh which is expanding to Africa. Norfund makes a strong commitment to SMEs in Africa through the Aureos Africa Fund which focuses on regional companies, and the loan finance companyGroFin Africa Fund. July August September October November December The Lehman Bros investment bank goes into liquidation and accelerates the financial crisis which began in the late summer of 2007. This crisis hits Norfund agrees to reduce developed economies, but spreads gradually to the its holding in SN Power to developing world. 40 per cent and enters into a new subsidiary which will mozambique’s president guebuza opens Banco concentrate on developing Terra’s head office in Maputo. Norfund has invested renewable energy in Africa more than NoK 12 million in this bank, which and Central America. specialised in agriculture-related industry. The government-appointed Policy Coherence Commission recommends in its report (NoK 2008:14) that NoK 10 billion from the A loan is given to Exim Bank government pension fund – global should be Ltd in Tanzania and additional liquidity invested in developing countries through Norfund.