Evaluation Department Evaluation of the Norwegian Investment Fund for Developing Countries (Norfund) Report 1/2015 Norad Norwegian Agency for Development Cooperation Postal address P.O. Box 8034 Dep. NO-0030 OSLO Visiting address Ruseløkkveien 26, Oslo, Norway Phone: +47 23 98 00 00 Fax: +47 23 98 00 99 Photo Wayne Conradie ISBN: 978-82-7548-801-3 Evaluation of the Norwegian Investment Fund for Developing Countries (Norfund) January 2015 Gaia Consulting Ltd Preface The Norwegian Investment Fund for Developing Countries (Norfund) is the single most important tool for Norwegian support to Private Sector Development. According to the Norfund Act, its purpose is to provide equity capital and other risk capital in order to assist in developing sustainable businesses and industry in developing countries. This evaluation of Norfund was initiated to better understand its role as an instrument of Norwegian development assistance policy, by assessing Norfund’s contribution to the growth of sustainable enterprises through documenting its development outcomes. This report presents the main conclusions with regards to Norfund’s policy relevance, effectiveness, efficiency and sustainability. The evaluation has taken more time than was anticipated. This is mainly due to the challenges associated with assembling a consistent dataset for evaluation. The Evaluation Department is thankful to the evaluation team for their efforts in compiling such a data set. The evaluation was conducted by Gaia Consulting Ltd. The consultants are responsible for the content of the report, including the findings, conclusions and recommendations. All primary and secondary data, interpretations and conclusions presented in this report are intended to fulfill the purpose of this evaluation. Private Sector Development is a priority of the Norwegian government and it is seen as a crucial instrument for poverty reduction. We hope this evaluation can contribute to an informed discussion of the role of Norfund as a development finance institution within Norwegian development cooperation policy. Oslo, February 2015 Acknowledgements This evaluation was carried out by Gaia Consulting Ltd (Gaia). Gaia would like to thank public sector officials, civil society and private sector representatives, in Norway and abroad for shar- ing openly information and participating in meetings and interviews. Norfund provided Gaia team easy access to Norfund staff in Norway and in regional offices, as well as facilitated access to other stakeholders of relevance for this Norfund evaluation, as requested and chosen by the Gaia evaluation team. The Gaia team wishes to particularly thank the Norwegian Embassies, the Ministry of Foreign Affairs, Norad, the Embassies and in particular Norfund, its regional offices and the selected investee companies for facilitating the field missions conducted as part of this evaluation. Mr Tapio Wallenius acted as a team leader with the responsibility for: organizing and guiding the evaluation team at the beginning of the work; leading the field mission to Asia; issues cov- ered in sections 3.1-3.3.; and commenting the other work flows. Mr Mikko Halonen acted as deputy team leader, being in charge of project management, production of the report and inte- grating the findings, conclusions and recommendations. Mr Erkka Ryynänen was responsible for ESG, financial and sustainability analysis and Ms Paula Tommila carried out portfolio and grant financing analysis and coordinated the case studies. Ms Julia Illman provided inputs to ESG analysis, Mr Johan Lunabba was responsible for tasks related to policy assessment and Mr Peter Platan acted as expert in finance and investment analysis. Mr Lauri Larvus acted as project assistant. An important contribution to the field missions was provided by independent national experts, including Ms Mary Suzan Abbo, Ms Nguyen Hong Chi, Mr Thomas Opande and Mr Otieno Osoro to whom we express our warm thanks. Naturally we extend our thanks to all the people met during field missions for sharing their valuable insights and views. The team was supported by an advisory board consisting of Dr Jehovaness Aikaeli, Mr Oddvar Sten Ronsen and Dr Iivo Vehviläinen, with the quality assurance team consisting of Dr Mari Hjelt and Mr Hendrik Lourens Van Nieuwenhuyzen. This Report is the responsibility of the consultants and does not necessarily reflect the views of Norad’s Evaluation Department, Norway’s Ministry of Foreign Affairs or their staff, or any other organisation or informant referred to. Any remaining errors of fact or interpretation are the responsibility of Gaia. Table of Contents Acronyms and abbreviations ................................................................... i Executive Summary ................................................................................ v 1 Introduction ......................................................................................... 1 1.1 Purpose and objectives ............................................................................................ 1 1.2 Evaluation scope and main questions .................................................................... 1 1.3 Object of evaluation - Norfund .............................................................................. 2 2 Methodology and analytical framework ............................................... 5 2.1 Evaluation framework and programme theory ..................................................... 5 2.2 Methods and information sources ........................................................................ 7 2.3 Challenges and constraints ................................................................................... 8 3 Findings ............................................................................................. 10 3.1 Policy relevance of Norfund operations .............................................................. 10 3.2 Functioning of the Board process and oversight by the Ministry of Foreign Affairs ........................................................................................................................ 20 3.3 Development effects of Norfund operations and Norfund programme theory . 24 3.4 Environmental, social and governance (ESG) issues, financial risk assessment and active ownership.................................................................................................. 31 3.5 Leveraging of capital for development ................................................................. 41 3.6 Use of offshore jurisdiction for investment, due diligence and safeguards ....... 46 3.7 Efficiency of Norfund .......................................................................................... 52 3.8 Profitability of Norfund ...................................................................................... 64 3.9 Grant financing ................................................................................................... 67 3.10 Sustainability of Norfund and the development outcomes of its operations ... 72 4 Conclusions ........................................................................................ 78 4.1 Relevance ............................................................................................................. 78 4.2 Effectiveness ........................................................................................................ 78 4.3 Efficiency ............................................................................................................. 80 4.4 Sustainability ....................................................................................................... 81 5 Recommendations ............................................................................. 84 5.1 Recommendations related to Norfund ´s strategic choices and focus ............... 84 5.2 Recommendations related to Norfund approaches, operations and processes . 85 References ............................................................................................ 87 Bibliography/literature ........................................................................ 93 Annex 1 Terms of Reference (TOR) ...................................................... 98 Annex 2 Data and survey instruments ................................................. 107 Annex 3 Investments covered through case studies ............................. 118 Annex 4 Stakeholders consulted ......................................................... 120 Annex 5 Norfund portfolio in figures ................................................... 130 Table of contents for tables and figures in Annex 5 ............................................... 130 Introduction ............................................................................................................. 133 Object of evaluation ................................................................................................. 133 Norfund asset allocation .......................................................................................... 135 Data related to development effects ....................................................................... 200 Data related to use of offshore jurisdiction for investment, due diligence and safeguards ................................................................................................................ 208 Data related to efficiency of Norfund ....................................................................... 211 Data related to profitability of Norfund (see also Annex 9) ...................................