Investing to transform lives - Strategic framework 2017-2021 CDC: the UK's development finance institution - CDC Group
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Investing to transform lives Strategic framework 2017–2021 CDC: the UK’s development finance institution
Strategic framework 2017–2021
Navigation
Our mission is to support the building
of businesses throughout Africa and
South Asia, to create jobs and make a
lasting difference to people’s lives in
some of the world’s poorest places.
How our model works
CDC is the UK’s development finance institution, wholly owned by the UK government.
We have a dual objective: to support growth and jobs that lift people out of poverty,
and to make a financial return, which we invest in more businesses. In this way, we use
our capital over and over again to help create the jobs and economic stability that will
enable countries to leave poverty behind.
342
Provides capital Businesses
and support in South Asia
To grow
businesses in
Africa and
South Asia
41%
Over The share of our post-2012 portfolio
invested in fragile and conflict-
These returns £4.8bn £700m 653 affected states at the end of 2016
are recycled Today CDC has total Of additional capital Businesses in
in new assets of £4.8bn invested by other investors Africa These businesses
investments alongside the £289m that we
create jobs…
£2.0bn
commied to funds in 2016
10 years ago CDC had
total assets of £2.0bn
Over 1m
Number of new jobs our portfolio Over
7%
companies helped create in 2015
Average annual rate of
17.9m
Jobs supported by
return between 2012 and
our portfolio in 2015
2016 ($; 12.9% in £)
Provide
And make a
essential goods
return for CDC
and services…
Over Pay local taxes…
56,400 GWh
£5.9bn
Of power generated by our
portfolio companies in 2015
Paid to local exchequers by
our portfolio companies
between 2012 and 2015
B Investing to transform lives, Strategic framework 2017–2021
Strategic framework 2017–2021
Contents
Introduction 12 Developmental
4 Foreword from the Secretary of State 26 Responsible
for International Development 30 Innovative
5 Introduction from our Chairman 34 Enduring
6 The UN Global Goals and the need for development capital
Appendix
Our strategic priorities 39 Focus on sectors
10 Our strategic priorities 46 The Development Impact Grid
Developmental Responsible
We will embed development throughout We will invest responsibly, and persuade
CDC to maximise our impact. others to follow suit.
We will: We will:
++Invest only in Africa and South Asia, where the world’s ++Set high environmental, social and business integrity
poorest people live. standards and provide practical assistance to businesses
++Prioritise investing in poorer and more fragile countries, and investment fund managers.
and the sectors that create the most jobs. ++Always ensure our capital or expertise supplements what
++Develop a world-class framework to maximise our impact. private investors will provide.
We will integrate this with our investment process and ++Increase our transparency and strengthen our approach to
deepen our development expertise. tax practice amongst development finance institutions (DFIs).
++Mobilise private capital alongside our investments, and find
new ways to partner with investors to increase our own impact.
++Achieve a broad range of impacts in addition to our main aim
of creating jobs.
++Support the UN Global Goals, including women’s economic
empowerment and climate change.
++Undertake more evaluations to enhance our understanding
of the best ways to support long-term positive change in
our markets.
Innovative Enduring
We will address key development We will grow in response to market need,
challenges in new ways. ensuring value for money for the UK taxpayer.
We will: We will:
++Invest to transform whole sectors. ++Build our team of outstanding professionals, who are
++Invest in new business models and dedicated to achieving development impact through their
nascent or failed markets. commercial judgement.
++Take calculated risks to unlock impact we could ++Expand our local presence by opening country offices.
not otherwise achieve. ++Manage and mitigate risks, recognising they are inherent in
our mission, through continuous improvement of our risk
policies and procedures.
Investing to transform lives, Strategic framework 2017–2021 1
Having a job means I have been able to sustain my life and send my children to school. Danford Mpalanzi, Songas, Tanzania
Introduction
Foreword from the
Secretary of State for
International Development
Introduction from
our Chairman
Context
CDC is like us. They look at the long‑term
horizon, they look at making this world a
better place to live. As long as an investment
is going to touch more people, and help
more people, they are supportive.
Dr Devi Shetty, Founder and Chairman
Narayana Health
Investing to transform lives, Strategic framework 2017–2021 3
Introduction
The Rt Hon Priti Patel MP
Foreword from the Secretary of State
Throughout history, sustained, is estimated at $2.5 trillion every year, CDC is pivotal to our mission to end
job-creating growth has played the with current investment levels less poverty for good and leave no one
greatest role in lifting huge numbers of than half of that. As the UN has made behind. This five-year strategic
people out of grinding poverty. This is clear, much of this finance needs to framework will see CDC step up as
what developing countries want and is come from the private sector. one of the world’s most developmental,
what the international system needs to transparent and high-impact
help deliver. It is a large part of how we CDC is one of only a few investors in the development finance institutions.
will achieve the Global Goals and help world with the skills and risk appetite As part of this, CDC will lead innovative
countries move beyond the need for aid. to create jobs and opportunities in the strategies that build markets for the
most difficult markets, where private future and create even more jobs in
That is why, as the UK’s International investors won’t often go. Yet it is these the world’s poorest places. It will
Development Secretary, I am determined same places where jobs and economic enable CDC to remain at the forefront
to take our work on economic opportunities are most desperately of development finance thinking
development to the next level. I recently needed to help bring stability and give and practice.
launched my department’s first ever people a stake in the future. It is here
Economic Development Strategy, that CDC uses its expertise and capital I am proud of CDC, and with this new
setting out how we will invest in to support businesses to create jobs, strategic framework I am confident
businesses to create jobs, catalyse and to demonstrate to private investors that this great British institution
private sector investment and build that responsible investments in will continue to make the pioneering
markets in the most challenging difficult markets can be viable. investments needed to transform
settings. CDC, as the UK’s development economies, help win the fight against
finance institution and a world leader CDC transformed its approach in 2012. poverty, and secure a more prosperous
in this field, will be central to its It now invests only in Africa and South future for people in the world’s poorest
success. It complements the rest of UK Asia, where over 80 per cent of the countries and for all of us.
aid. For example, it is not enough for us world’s poorest people live and where
to simply improve a girl’s education – private capital is scarce. CDC prioritises
for her to escape poverty she needs sectors which can create the most jobs.
both a better education and a better job. In 2015, CDC-backed businesses helped
create over one million new jobs.
If you look at the world today, faltering These same businesses have paid over
growth and rising youth populations £5.9 billion in local taxes since 2012. The Rt Hon
have exposed the chronic need for This, in turn, is money governments
jobs and better opportunities. At the can use to finance much-needed public
Priti Patel MP
moment, most developing countries investments in health, education and
are not growing or industrialising fast infrastructure – a virtuous circle
enough to leave poverty behind. In fact, which can itself quicken the escape
the additional financing needed to from aid dependence.
achieve the UN Global Goals by 2030
4 Investing to transform lives, Strategic framework 2017–2021
Introduction
Graham Wrigley
Introduction from our Chairman
Next year, CDC will be 70 years old. seven per cent a year. To do all this, stakeholders in the countries where
During its existence, it has developed we’ve built our capability, with we invest. We will continue to do so.
a proud heritage of achieving economic more than 230 highly skilled staff We’re committed to doing more about
development in the world’s poorest committed to achieving the best transparency, stakeholder relations
countries, altering its approach possible development impact. and evaluating our impact, not only to
according to the needs of the time. enhance our own knowledge but, I hope,
In 2015, the Department for International to inspire others to begin investing to
2012 marked an important new strategic Development (DFID) provided CDC transform lives.
direction. We narrowed our with its first new capital in 20 years.
geographical focus to Africa and South Later that year, the new UN Global Goals CDC is fully owned by the UK taxpayer
Asia, where a majority of the world’s set everyone’s sights on 2030 and, with and, like any business, we aspire to
poorest people live, and prioritised DFID, we discussed our shared ambition create value for our shareholder. This
investing in sectors where growth leads to do even more to help countries means creating maximum development
to jobs. We also started investing transform into flourishing economies impact, demonstrating to other investors
directly once again, alongside our that will provide jobs and livelihoods, that successful investing in Africa and
well-established approach of raise incomes, deliver goods and services South Asia is possible, and generating
supporting investment fund managers. and end poverty for their citizens. a financial return that will permit
This has given us the flexibility to the recycling of patient, high-impact
target high-impact businesses directly, This new strategic framework sets investment in the decades ahead.
while continuing to support a much out our vision for the next five years.
wider range of companies and mobilise It rightly builds on our progress since
private capital through funds. 2012 with an ambition to use our
commercial skills to achieve even more
We’ve achieved a lot. Over the last five impact. By addressing market and
years we’ve supported the creation of sector problems, by looking for new
millions of jobs and invested in 1,745 ways to mobilise more capital and by
businesses. Those businesses have being bold and smart about risk. Graham Wrigley
taken strides to operate to high Chairman
environmental, social and business In developing this framework, we have
integrity standards. And we’ve made listened to the views of many people,
an average return to UK taxpayers of including NGOs, parliamentarians and
1,745
Number of businesses supported
by CDC in the last five years
Investing to transform lives, Strategic framework 2017–2021 5
Introduction
The UN Global Goals and the
need for development capital
The need for The need
economic growth for jobs
The UN’s Global Goals set ambitious Over the next decade, a billion more
targets to end extreme poverty by young people will enter the job market,
2030 and set the world on a path to mainly in Asia and Africa. Africa’s
sustainable development. population is set to double by 2050,
and its urban population to triple.
The Goals and the Addis Ababa Getting people into work will be vital
Action Agenda produced international for their wellbeing, giving them dignity
consensus that the public sector, even and the means to escape poverty.
in developed economies, cannot do this
alone. No country has escaped poverty To achieve this, countries need a mixed The UN Global Goals for Sustainable
without a thriving private sector economy with businesses of all sizes. Development, agreed in 2015, produced
playing a full role in developing a Many African and South Asian economies international consensus for the first time
strong economy that will generate the currently rely disproportionately on that the private sector must play a full
role in eliminating poverty.
wealth and tax receipts needed to build informal or sub-scale businesses.
infrastructure, provide public services, According to available data, the UK has
and create jobs. over 15,000 businesses that reported
more than $50 million in revenues over
the last 12 months, whereas Ethiopia
has just 15 for its population of 99
million. Many smaller African countries
have fewer than ten. The picture is
similar in the poorer states of India.
Bihar’s 100 million people have just
three such businesses.
Having a job
is a first step
in eliminating
poverty in a
community.
Petronilla Alphonce (pictured),
Head of Production, Chai Bora, Tanzania
CDC invests in Chai Bora through
the Catalyst Fund I.
6 Investing to transform lives, Strategic framework 2017–2021
Introduction
I had an idea to do business,
but I did not have the
money. Then I heard I could
get a loan. We can use the
money we now earn from
our business for our
children’s studies, for taking
care of us if we fall ill, and to
buy things for our home.
Kala started her tailoring business
with a microfinance loan from Equitas,
an Indian microfinance institution
we’ve supported since 2013.
The need for investment to attract sufficient investment,
but a key reason is risk. Whether real
Of course, the picture is not the
same across the whole of Africa
Developing countries currently face or perceived, investors are deterred and South Asia. For example, growth
an estimated annual investment gap by a range of risks, from political prospects across South Asia are
of $2.5 trillion if they are to achieve instability and corruption through generally expected to be positive,
the Global Goals by 2030. Long-term to currency volatility. and those African economies reliant
underinvestment has led not only to a on imports will benefit from lower
lack of jobs, but to poor infrastructure While business opportunities remain commodity prices.
and services that lag decades behind for commercial investors, the economic
those in more developed economies. environment is more challenging than The next five years will continue to
it has been in some years. Investment present opportunities and challenges.
Foreign direct investment (FDI) growth in most emerging and There remains considerable uncertainty
in the regions where we invest has developing markets is currently below with more than 20 national elections
remained persistently low. In 2015, its long-term average for the past due to take place across Africa and
the UK’s FDI per capita was US$774, quarter-century, except during serious South Asia in the next two years.
whereas Pakistan’s was just $5. global downturns. The markets we These can bring opportunity, volatility,
In fact, South Asia’s FDI inflows are invest in are likely to continue to face stagnation and even conflict. Our role is
the lowest relative to population across considerable economic headwinds over to continue to act as a long-term, patient
the world. Global inflows of FDI to the next five years, such as falling investor, stepping up when others
sub-Saharan Africa accounted for just commodity prices, low levels of foreign might withdraw.
two per cent of the total in 2015. There investment, increasing debt and
are many reasons these countries fail political risk.
here is no secret about what rekindling growth and
T
getting out of poverty means: it means raising the
productivity of ordinary people and we know how to do
that. Raising the productivity of ordinary people is what
proper firms do. They perform a miracle of productivity
every day by bringing ordinary people together at scale
and specialisation, and making them dramatically more
productive than they would be as isolated individuals.
Sir Paul Collier, Professor of Economics and Public Policy, University of Oxford
Investing to transform lives, Strategic framework 2017–2021 7
Introduction
Investment works
Celtel: bringing mobile telecoms to Africa
CDC invested in Celtel, an African mobile telecoms company, in 1998, when
Africa was considered an unimportant and highly risky market by international
operators and commercial investors.
Over the following seven years, we supported the company through the multiple
challenges faced by a start-up in a nascent sector, including by introducing
partners in Zambia and Malawi, supporting further fundraising and giving
strategic and operational input. By 2005, the risk of investment had reduced
significantly. When we sold our investment to Mobile Telecommunications
Company of Kuwait, Celtel had become a multinational business operating in
13 countries, serving eight million customers and supporting a huge network
of local airtime sellers.
Celtel’s success paved the way for the explosion of mobile telecoms across
Africa and led to profound impact at multiple levels of society, especially
in remote communities.
Commercial investment political uncertainty, and other risks
related to the businesses themselves,
The line between where DFIs and our
commercial counterparts invest is not
and the role of DFIs such as unproven strategies a clear one. DFIs often cooperate with
or inexperienced management teams. commercial investors on individual
Commercial investors invest where However, DFIs are specialist investors, deals. Sometimes, a DFI’s willingness to
expected financial returns justify skilled at assessing and mitigating invest encourages commercial investors
the risk, effort and cost of investing. those risks. We often invest for longer to participate alongside. In other cases,
Commercial capital flows into a market periods, a decade or more. We are a DFI’s particular expertise or long-term
when investors believe enough more engaged with our investments, perspective enhances a business for
such investments exist to warrant selecting the right management teams other investors. Furthermore, DFIs will
dedicating resources to finding them. and raising environmental, social often invest in young companies, where
and governance standards. the risk of failure is highest. Once the
Like other DFIs, we aim to increase
business has grown and success is more
capital flows to underdeveloped On a portfolio basis, the additional risk assured it may attract private investors.
markets so countries can finance their DFIs accept means we typically have A DFI’s early investment efforts may
own way out of poverty. DFIs focus lower financial returns and experience even attract private capital to an entire
on less-developed or fragile markets more failures than commercial region or sector.
and on sectors most important for investors. DFIs, however, are always
economic growth. making commercial judgements about
the prospects of success and often
This focus means DFIs typically
individual investments may have
take more risks. These can include
good financial returns.
market risks such as regulatory or
8 Investing to transform lives, Strategic framework 2017–2021Introduction
How we are different before we can exit. Finally, we
more often invest in equity because,
framework will allow us to innovate
and complete more of these investments
Although all DFIs have the same despite its higher risk profile, we can funded by a separate pool of capital
dual mandate and often partner offer a greater degree of engagement that can accept lower portfolio financial
on investments, each executes its and support to companies and therefore returns. This will open up further
mandate differently. CDC has some achieve more impact. Such an approach, developmental impact at greater scale.
key differences from other DFIs. however, results in a riskier portfolio, We have successfully piloted this
We focus exclusively on Africa and with greater financial volatility. approach, which we describe further
South Asia, because this is where most in the Innovation section of this
of the world’s poorest people live, and Over the past five years, we have document, in partnership with
we prioritise the hardest regions. declined investment opportunities that the Department for International
Because we invest in such challenging could achieve significant developmental Development (DFID), and we are
countries, we must work hard to impact because the risk of failure was ready to expand it.
generate suitable investments and too great relative to the potential
actively manage them over long periods return if successful. Our new strategic
Our strategic positioning
We make investments with a range of risk/return profiles to build
a balanced portfolio and to achieve different impact objectives:
Lower Risk Higher
Development Partners Indorama, Nigeria Feronia, Democratic
International (DPI), Pan Africa Republic of the Congo
DPI is an African fund manager Indorama was supported by CDC, Feronia is a 105-year-old palm-oil
investing in established and other DFIs and commercial lenders business located in a remote area
growing companies across a to expand its existing plant in of the DRC. Before we invested,
range of sectors. the Niger Delta and develop a new the company was on the brink of
urea fertiliser line. The output, collapse after suffering years of
In 2013, we anchored DPI’s second which uses otherwise flared gas, neglect under its previous owners
fund, agreeing the investment will boost local agricultural following the Congolese civil war.
investment
strategy and fund terms. We made productivity, which is critical to
CDC
an early $75m commitment so Nigeria’s long-term food security. Our investment was the only way
that others could follow with to secure the employment of 9,000
confidence, and provided extensive By offering lending for a longer people and the livelihoods of many
support to DPI to create a more term than commercial banks, DFIs thousands more. With our support,
investor friendly proposal. This helped increase the commercial Feronia has embarked upon a
had a catalytic effect and the final viability of the project. DFIs also significant, long-term investment
fund totalled $724million, with required the business to follow programme to return the company
$80m from other DFIs and $569m IFC Performance Standards to commercial viability, whilst
from 35 private investors, including during operation and construction, implementing an Environmental
a number for whom it was ensuring the implementation of and Social Action Plan to enhance
their first capital commitment international environmental and key community infrastructure.
to the Africa region. social standards on the project.
++Mobilisation of commercial ++Job creation and improved ++Significant job preservation and
investors. environmental and social provision of key community
Expected
++Successful fund manager able
impact
standards. services.
to graduate beyond DFI capital. ++Limited mobilisation of ++Mobilisation of DFIs only.
commercial investors and
mobilisation of other DFIs.
Investing to transform lives, Strategic framework 2017–2021 9Our Developmental
We will embed development
strategic
throughout CDC to maximise
our impact.
priorities
See pages 12–25
Over the next five years, we will Responsible
invest to transform economies, We will invest responsibly, and
persuade others to follow suit.
businesses and lives in Africa
and South Asia. See pages 26–29
Innovative
We will address key development
challenges in new ways.
See pages 30–33
Enduring
We will grow in response to
market need, ensuring value
for money for the UK taxpayer.
See pages 34–37
10 Investing to transform lives, Strategic framework 2017–2021Our strategic priorities
We will: ++Achieve a broad range of impacts
in addition to our main aim of
++Invest only in Africa and South Asia, creating jobs.
where the world’s poorest people live.
++Prioritise investing in poorer and ++Support the UN Global Goals,
including women’s economic
more fragile countries, and the
empowerment and climate change.
sectors that create the most jobs.
++Develop a world-class framework to ++Undertake more evaluations to
enhance our understanding of the
maximise our impact. We will integrate
best ways to support long-term
this with our investment process and
positive change in our markets.
deepen our development expertise.
++Mobilise private capital alongside our
investments, and find new ways to
partner with investors to increase our
own impact.
We will: ++Increase our transparency and
strengthen our approach to tax
++Set high environmental, social practice amongst development
and business integrity standards
finance institutions (DFIs).
and provide practical assistance
to businesses and investment
fund managers.
++Always ensure our capital or expertise
supplements what private investors
will provide.
We will:
++Invest to transform whole sectors.
++Invest in new business models and
nascent or failed markets.
++Take calculated risks to unlock impact
we could not otherwise achieve.
We will: ++Manage and mitigate risks,
recognising they are inherent in
++Build our team of outstanding our mission, through continuous
professionals, who are dedicated
improvement of our risk policies
to achieving development impact
and procedures.
through their commercial judgement.
++Expand our local presence by opening
country offices.
Investing to transform lives, Strategic framework 2017–2021 11Our strategic priorities
Developmental
We will emphasise development throughout CDC to maximise our impact.
Here we explain the impact we want to achieve; how we achieve it and how we select
investments and track our actual impact.
The impact we (Goals 7 and 9) and improving access
to essential goods and services, such
Job creation
We prioritise job creation because it
want to achieve as health and education (Goals 3 gives people the income, opportunity
and 4), both directly and through tax and dignity to live better lives. In the
Our investments lead to a broad range of contributions. We will also mobilise poorest regions of the world, gaining
developmental impact, which ultimately additional sources of capital from or keeping a job can transform an
has a transformative effect on sectors partners because this is key to individual’s – and their family’s –
and countries’ economies. Job creation increasing the funding available prospects and choices.
remains our primary strategic focus, to achieve the Goals (Goal 17).
as it is the main route out of poverty. The 2013 World Development Report
We are committed over the next on jobs was clear that “ job-related
However, we will contribute to the five years to supporting women’s events are the main escape route from
achievement of many of the Global Goals, economic empowerment (Goal 5) and poverty in developing and developed
leading to the elimination of poverty combatting climate change (Goal 13). countries alike”. In ten of 18 countries
(Goal 1). Our strategic focus on jobs considered, income from jobs explains
prioritises Global Goal 8 on decent work more than half of the change in poverty.
and economic growth. Our broader In another five, it accounts for more
impact includes helping remove market than a third of the reduction in poverty.
constraints in energy and infrastructure
Our strategic focus Job
creation
Payment of taxes
Sector impact
Our wider impact
Mobilisation and
demonstration effect
Women’s
Climate Job Skills and
Our commitment economic
change quality leadership
empowerment
12 Investing to transform lives, Strategic framework 2017–2021Our strategic priorities
Investment works
Adding value by increasing
resource efficiency
We worked with Narayana Health, an affordable healthcare company in India,
to improve resource efficiency in areas such as water and energy conservation,
while maintaining high standards of care. Following a detailed water audit and
water conservation campaign, Narayana Health has achieved a 33 per cent
reduction in water consumption across all its facilities.
Payment of taxes Mobilisation and demonstration effect
The mobilisation and effective use of There needs to be a huge increase in
domestic resources are central to the funding if the Global Goals are to be Our commitment to women’s
Global Goals, as stated in the Addis met by 2030. Aid will not be enough. economic empowerment
Ababa Action Agenda. Tax revenues as And neither will investments we make ++Through our Code of
a percentage of GDP are particularly alone or with other DFIs. We must make Responsible Investing, we insist
low across Africa and South Asia. In the considerably more of the impact of our on no discrimination in our
UK, tax represents 25 per cent of GDP1. capital by mobilising the much larger investee businesses.
In Pakistan it is 10 per cent and just pool of private investors. ++We will also look for ways to
1.5 per cent in Nigeria. When our create economic opportunity
investee companies grow their profits, When we make successful investments for women as employees,
this increases the taxes paid to national in a business, sector or region previously suppliers and customers.
exchequers, which enables the viewed as unsuitable by private investors, ++We will monitor and evaluate
provision of essential infrastructure it can help demonstrate to them that the impact of these gender-
and public services. the actual risks may be lower than related activities.
they perceive. We work to encourage ++We’ll share examples of good
We require our investee companies to pay additional investment either alongside practice and our experiences
taxes in the countries where they operate, our investment, or many years later, when with stakeholders, and work
and since 2012 our investee companies investors see progress or positive returns. with other interested DFIs to
have paid £5.9 billion in local taxes. improve the ways investing
Women’s economic empowerment can promote women’s
Sector impact Women’s economic empowerment empowerment.
Our investments generate a broader through labour participation is
range of impact in support of the fundamental to achieving gender
Global Goals, beyond creating jobs. equality and improves economic
For example: growth, children’s health and education,
and business performance. There is Our commitment
++Infrastructure investments generate huge untapped potential: 31 per cent of
on climate change
and deliver more reliable power to women participate in the Indian labour
households, schools, clinics and force compared to 76 per cent of men. ++We will work with our portfolio
governments, as well as businesses. companies to improve resource
In sub-Saharan Africa alone, over 600 Climate change efficiency and use of renewable
million people lack access to electricity. The private sector has a central role in energy sources.
++Investments in financial institutions mitigating and adapting to the impacts ++We will ensure that new
reach financially excluded people, of climate change, as reflected in the infrastructure investments
who have little access to banking. 2016 Paris agreement. We will assess are climate-resilient and
++Manufacturing investments have a climate change risks and opportunities take consideration of low
broad impact on supply chains, and in potential investments, incorporating carbon transition.
exporters make a valuable contribution it into our due diligence processes, and ++We will continue to engage
to a country’s balance of payments. developing measures to reduce energy with the broader community
++Investments in food and agriculture and water consumption, and potential to share experiences, learn
improve productivity and enhance greenhouse gas emissions, through from others and explore
livelihoods, especially amongst audits, feasibility studies and additional co-investment opportunities.
smallholder farmers. They also help investments under a new Resource
meet the rising demand for food and Efficiency Facility (see page 33).
the need for food security.
1. Data from the World Bank exclude social security contributions.
Investing to transform lives, Strategic framework 2017–2021 13Our strategic priorities
Investment works
Providing
quality jobs
Hawa Zaveli Mgulunde works
at the Chai Bora tea factory in
Mafinga. The regular income
has allowed her to pay for HIV
treatment and given her the
stability to plan for her children’s
future. Hawa says Chai Bora’s
success has been important to
the community: “Tea has really
changed people’s lives. People
have been able to build houses.”
We invest in Chai Bora through
the Catalyst Fund I.
Job quality While business networks are common
We know that to improve people’s lives, in developed countries, they’re not in
providing access to not just a job, but more nascent economies. That’s why we Our commitment to job quality
a good quality job, is vital. This can be set up The Africa List. In each country, ++We will establish a framework
challenging in countries with weak we identify 100 high-performing to monitor and assess job
labour and health and safety laws, companies and ask their CEO or Chair quality in our investments.
but through our investment, support to nominate two exceptional future ++We will strive to ensure our
and expertise we can help businesses leaders to join. Currently operating in businesses adhere to
overcome these challenges. For Uganda, Tanzania, Ethiopia, Zambia International Labour
example, we build the capacity of our and DRC, members connect, share Organisation standards on
investee companies and investment ideas and develop as leaders, forced and child labour, as
fund managers to meet good including by accessing leadership well as non-discrimination,
international practice in areas such and management training. freedom of association
as occupational health and safety. and health and safety.
Our ambition is to be operating in ++We will better understand
Skills and leadership ten countries by 2021, with a network how we can improve job quality.
The quality of leadership is the largest of 2,000 next-generation CEOs, creating For example, we’ve commissioned
single factor in any company’s success a powerful network of future African an independent evaluation
or failure. Africa’s next generation of business leaders. of the garment industry in
local business leaders is emerging, but Bangladesh to understand
will need greater support to develop how management training
the skills essential for building the can improve job quality
businesses that will be the next and productivity.
success stories on the continent.
14 Investing to transform lives, Strategic framework 2017–2021Our strategic priorities
Achieving impact
Our purpose is to achieve developmental impact. We do this through commercial investment skills and judgement.
The dual objectives of our mandate, to improve peoples’ lives and make a financial return, always go hand in hand. Failed
companies cannot sustain jobs or pay taxes. Our goal is for businesses to thrive, generating jobs and paying taxes not just
during our investment period, but for many decades beyond. This principle infuses everything we do.
Although impact is enhanced through good management, the key to achieving it is to select the right investments. To do this,
there are four essential criteria: (1) countries and regions, (2) sectors; (3) products, and (4) partners. Here we describe our
approach to each for the next five years.
1. Countries and regions high. We often invest alone or with
other DFIs only. We will invest across
capital or expertise supplements
what commercial investors provide.
Supporting countries in their transition
the economy where businesses can For example, over the past five years,
to vibrant trading economies
meet our high standards. Kenya’s capital market has developed
In the poorest and most fragile states, and its economy has grown. We now
As countries become more developed, focus on the sectors where job creation
investable opportunities are rare, and
their business environment and is greatest and where we can bring
often have to be created, sometimes over
management capacity starts to improve, particular value through our capital and
many years. The business environment
and investment opportunities begin to expertise. We also focus on mobilising
is weak and management capacity
increase. We will become more selective third-party capital and helping capital
lacking, meaning private investment is
by investing in sectors with the greatest markets to develop, so the reliance on
severely limited and the risks are very
impact, while always ensuring that our DFIs can reduce over-time.
Tailoring our approach to a country’s needs
Poorest and most fragile countries Countries transitioning from aid
Stage of development
DRC, Afghanistan South Africa
Investment
Capital markets
Very limited investment opportunities limited Better functioning
and management
opportunities due to to a few sectors capital markets
Investment markets capability developing
risky markets and poor and regions, local and greater depth
in some sectors
management capacity management capacity of management
and regions
remains low
CDC sector focus All sectors The most job-creating sectors
Mobilisation potential Limited opportunities to mobilise capital High potential for mobilisation
CDC products Choice of best investment product to respond to market needs
Investing to transform lives, Strategic framework 2017–2021 15Our strategic priorities
Targeting capital where
it’s most needed
Representative office
Pakistan
West Africa hub
Nigeria
East Africa hub
Representative office Nairobi
Kinshasa
Southern Africa hub
Johannesburg
16 Investing to transform lives, Strategic framework 2017–2021Our strategic priorities
Where we invest
++We invest only for the benefit
of Africa and South Asia.
++We will increase the volume
of our investments in poorer
and more fragile countries
and regions where our capital
is most needed.
++In more developed countries,
we will focus our support on the
expansion of businesses into
poorer neighbouring regions.
Representative office
Mumbai
South Asia hub
Bangalore
Investment difficulty
D C B A
Harder
The colours on this map correspond to the
country rankings used in our investment
screening tool, the Development Impact
Grid. Find out more on page 46
Our regional offices
The boundaries, names shown and the designations used on this map do not imply
2017–18 expansion plan
official endorsement or acceptance by the United Nations.
Investing to transform lives, Strategic framework 2017–2021 17Our strategic priorities
The capital markets and businesses Ultimately, we want private capital
in countries such as South Africa and markets to provide the finance that
Morocco are integrated across Africa growing businesses need to create jobs,
and vital for the success of poorer reduce poverty and drive economic
countries. So we invest in these development. Countries can then
countries as regional hubs to reach transition away from our help
people in poorer countries. We do altogether. In 2012, we exited from
this by investing in businesses with a number of countries in Asia and
headquarters there, with strong Latin America.
management teams and proven
business models, encouraging
them to expand into poorer, more
fragile countries.
Investing in India
Many Indian states are larger than African countries and just as poor.
For example, Uttar Pradesh has a larger population than Nigeria (200 million) and a lower GDP per capita than Tanzania.
The sheer size and diversity of India means we consider each of its 36 states and union territories individually.
Just as in Africa, our investments in India prioritise the poorer and most capital-starved states and populations.
However, sometimes an investment outside the poorest regions can also have impact – for example, solar panels should
be located where sun is most plentiful, but the power can supply under-served states. We will also invest to support a
company’s expansion into poorer states, and we encourage Indian companies to expand across South Asia and into
Africa. We will make no more than 38 per cent of our investments in India.
Investment works
RBL Bank
Our investment has helped
the RBL Bank expand from its
headquarters in Maharashtra
into poorer Indian states. In rural
Madhya Pradesh, we worked
with the bank to develop a
financial inclusion and literacy
programme that reached an
estimated 300,000 people,
like those shown here.
18 Investing to transform lives, Strategic framework 2017–2021Our strategic priorities
Investing in
fragile and
conflict-affected
states
41 per cent of our post-2012
portfolio is invested in fragile and
conflict-affected states (compared
to 24 per cent in 2011). No other
major DFI achieves more than
about 25 per cent. Over the next
five years, we will take the
following steps to strengthen
our footprint in these states:
1. W
e will strengthen our local
presence to deepen our
understanding and to stay
close to these markets.
2. We will support strong regional
businesses to expand into more
difficult countries.
Investment works
3. We will innovate with different
corporate structures, so that Providing a facility to help
high calibre people can be
engaged across multiple businesses during the Ebola crisis
investments in smaller
economies.
4. We will, through the Africa During the Ebola crisis in Sierra Leone, while aid agencies provided vital
List, build networks of future humanitarian assistance, we worked to support the struggling private sector.
business leaders and support We designed a $50m facility, working alongside Standard Chartered Bank,
their development. to provide much-needed liquidity to keep essential businesses running
during a very difficult period.
2. Sectors
Prioritising the sectors that
create the most jobs
We focus on seven priority sectors
Focus on sectors
that have the greatest propensity
to create employment.
Our sector-specific investment teams
develop strategies to maximise our Infrastructure Construction
impact in each sector to identify key
development needs and targeting our
investments businesses that will meet
those needs.
You can find out more about our
Financial institutions Education
tailored approach to each sector
on pages 39–45.
Manufacturing Health
Food and agriculture
Investing to transform lives, Strategic framework 2017–2021 19Our strategic priorities
3. Products commitments. We expect this to
continue over the next five years.
Selecting the best approach Portfolio structure 2011–2021
Longer hold periods will weight our
for each investment
portfolio towards direct equity over
We provide capital in many ways time, as shown in the illustrative
(equity, debt, structured instruments, chart (right) based on current product
guarantees or trade finance) to meet projections for the next five years. 100%
our investees’ needs flexibly. We invest The overall increase in our investment
both directly, where our team makes volumes over this ten-year period
the investment decision and looks after means that, in absolute terms, 75%
the portfolio, and indirectly, where our annual investment in intermediated
investment selection and management equity will not decrease.
is made by a carefully selected third 50%
Each product has different benefits,
party, normally an investment fund
so taking a flexible approach enables
manager. Over the next five years,
us to achieve a wider range of impact
we will supplement this with small 25%
objectives, as well as meeting the specific
amounts of grant finance.
needs of potential investee businesses.
We re-established the capability to
We have three main product 0%
2011 2016 2021
invest directly from 2012, and now have Actual Actual Projected
groups: direct equity; debt (including
a balanced approach to all our products,
guarantees and trade finance) and
with direct investments comprising Intermediated equity Direct equity Debt
intermediated equity (principally
around two-thirds of our annual
through funds) – plus grant finance.
Different products achieve different results
Direct Indirect
investments investments
++Selecting investment opportunities that will ++Developing local investment capacity
maximise impact
++Mobilising capital from commercial investors
++Engaging closely with investee companies
Best for
++Reaching more and smaller businesses
++Supporting larger or high growth companies
++Longer investment periods
++Both direct and intermediated investment can contribute to job creation and economic growth
Common impact
in targeted countries
++Both can support sector-specific strategies
++Both can help improve environmental, social and governance standards in investee businesses
++Requires more in-house resources to select ++Delegation of individual investment selection
and manage investments to the fund manager, which may have a wider
Challenges
++Reach limited by size and location of the CDC team range of priorities than solely impact
++Can’t support small companies ++Shorter investment period (five to seven years)
++Fewer funds in the hardest countries
Pristine Logistics Frontier Fund
In 2015, we invested in Pristine Logistics, a developer We invested in Frontier Fund, the first Bangladesh-
of greenfield rail freight terminals operating in some focused investment fund, in 2009–10 alongside
of the least-developed regions of India. This type of partner DFIs as the mandate was considered
infrastructure is essential for enabling local trade too risky by private capital.
Case studies
and economic growth.
Under DFI guidance, the fund manager has
There is a dearth of commercial capital for developed Frontier Fund’s investing capacity alongside
infrastructure in India’s poorest states due to a successful track record of investments in Bangladesh.
significant inherent risks. We’ve maintained our commitment to the team and
invested in Frontier’s successor fund, Frontier
Bangladesh II, in 2015.
20 Investing to transform lives, Strategic framework 2017–2021Our strategic priorities
Over the next five years, each product
will have different investment priorities
Direct equity Debt
Our focus Our focus
++Businesses that directly serve poorer communities. ++Filling the gap created by an undersized banking
++Innovative business models, especially where sector in Africa and much of South Asia.
these lower the cost of essential goods and services. ++Stepping up where international banks are
++Larger, well-managed businesses with a desire withdrawing due to regulatory requirements.
to expand their operations into poorer regions. ++Infrastructure projects in priority areas such as
++High-growth companies capable of becoming power and transport.
regional or national champions. ++Financial institutions to increase the flow of credit
++A range of equity ownership stakes, from to SMEs, local corporates, residential mortgages
minority to majority, with a strong preference and trade finance.
for significant influence.
Investment works
How we use direct
equity: Globeleq
In 2015, we took a majority stake in Globeleq,
Investment works
Africa’s largest owner of independent power
plants (producing 1,200 MW in five countries), How we use debt:
to address the bottleneck in early-stage power
development. Irrawaddy Green Towers
We established a new strategy, Board and
management team to focus the company on a In 2016, we made our first direct investment in
more developmental mission: to develop more Myanmar, providing a loan to Irrawaddy Green
new power across the whole of Africa, including Towers to construct 2,000 telecom towers. The
in some of the most power-starved and new towers will have significant developmental
challenging countries. Our plans are to add impact by increasing mobile connectivity.
over 5,000 MW of new generating capacity in
the next decade. Such an increase would have The company employs more than 300 people
an enormous impact: indicatively, the current and builds local capacity in Myanmar by
1,200 MW of installed capacity supports encouraging skills transfer between expatriate
an estimated 350,000 jobs and livelihoods. and local engineers.
Investing to transform lives, Strategic framework 2017–2021 21Our strategic priorities
Intermediated equity Grants
Our focus We will now begin to make grants available to
++Reach more companies of all sizes across the our investee companies where they will enhance
priority sectors in our markets, focusing on the development impact.
small and mid-size companies that particularly
face a financing gap. Our focus
++Support the investment funds industry in Africa ++We will target specific activities such as assessing
and South Asia during a difficult economic cycle, the entry into new markets or the feasibility of a
which will increase the importance of our role. resource efficient investment.
++Explore opportunities to increase mobilisation ++We will make grants available only to management
from a broader range of sources, such as domestic teams that have demonstrated their own financial
pension funds or philanthropic capital. commitment to the goal of the grant.
++Support first-time fund managers pursuing new
strategies, such as in countries where the industry
is yet to emerge.
Investment works
How we use intermediated equity: our pivotal role
in developing the investment fund industry
We helped pioneer the investment fund industry business success – revenues, profits, taxes
in Africa and South Asia in the 1990s. Despite early paid and employment.
losses, we persevered and we’re now the largest and 2. Built local capacity: we had a pioneering role in
most respected supporter of funds in these regions. establishing an enduring private equity industry
Our reputation and ‘seal of approval’ is critical for with the right people and skills to channel
establishing new funds, especially with first-time capital into countries.
managers. Over the whole period, we have provided 3. Reached a broader range of businesses: funds
over $5 billion to funds in developing countries, enabled us, as a London-based organisation
which have mobilised $13 billion alongside us. with finite resources, to provide capital to a
broad range of businesses, particularly those
An independent working paper by Professor Josh that were difficult to access directly.
Lerner of Harvard Business School 1 looked at the 4. Mobilised capital: CDC-backed funds
impact of our fund investments from 2004 to 2012. demonstrated that it was possible to invest
It found they had: successfully in challenging environments, and
attracted third-party capital to these markets.
1. B
uilt businesses and created jobs: funds
had a positive impact on four measures of
1. The impact of funds: an evaluation of CDC 2004–12.
22 Investing to transform lives, Strategic framework 2017–2021Our strategic priorities
4. Partners our view of what can be achieved in
a sector or country, and we will listen
Working with the right people Our commitment on mobilisation
and respond to innovative strategies
Like any investor, our success depends developed by a potential investee Over the next five years, we
on the calibre of the people we support, company or investment fund manager. will work to encourage more
whether management teams, Board private investment in Africa
Building successful businesses with and South Asia:
members or investment fund managers.
the right values helps to improve
We will continue to establish CDC as
a preferred investor, which will attract
the whole business sector over time. ++We will mobilise private capital
The thousands of individuals who work alongside our investments;
the right people who want us as their
in these companies will benefit from we will do this across all our
funding partner, and will continue to
the knowledge and experience they gain product strategies where we
structure relationships that work for
well beyond the life of our investment. have a track record of returns
them as well as us.
The skills they acquire will stay with and impact.
Experienced entrepreneurs who them for their next step, whether ++We will proactively
understand what it takes to build it’s a new job, raising a new fund demonstrate the viability of
a successful enterprise are rare, or starting a company – and can be investing in these markets
especially in the poorest regions of shared with others. by sharing our expertise,
Africa and South Asia. We must also knowledge and data.
share the same values and business
Mobilising private investors ++We will take advantage of our
We multiply the impact of our proximity to the City of London
principles. We support training in
investment by mobilising private and our knowledge of local
investee companies, and more broadly
capital and demonstrating to investors pools of capital in our markets
through the Africa List.
that our markets are viable. Our to build more relationships
Our selection process is highly intermediated equity strategy has with investors, such as pension
influenced by finding the right people to been successfully mobilising private funds and philanthropists.
work with, whose vision will determine capital into funds alongside us since
the business strategy we back. This 2000 and we will build on this.
means we are flexible about adjusting
Our framework for
selecting investments
and tracking Our framework to
actual impact maximise impact
Maximising impact is at the heart We will use three increasingly granular approaches to
of our investment process and select new investments:
culture. Over the next five years we
will implement a world-class framework 1 Our Development Impact Grid (see Appendix) will direct
designed to select the right investments, us to the more difficult regions and job-creating sectors.
manage progress against expectations 2 Our sector knowledge will give us greater confidence
and measure what we actually achieve, about which investments can have the most impact.
alongside learning about what works. 3 We will develop, and publish on our website, an explicit and
We will increase development expertise compelling case for every investment or fund commitment.
throughout our organisation. This will state succinctly the most important impact we aim
to achieve.
The first two of our four investment
selection criteria – countries and The case for each investment will give us a measure for success
regions, and sectors – have been against which we can track progress over time. Importantly
designed into our first-level investment it will allow us to close the loop between the ex-ante case and
screening tool: the Development Impact the ex-post management and measurement of actual impact.
Grid (for more details see page 24 and
Appendix). This clear and simple tool We will also measure and publish the annual portfolio-wide
grades the investment difficulty of each impact we have on jobs, taxes and mobilisation, and improve
country (combining data on fragility, our knowledge through thematic evaluations.
market size, income levels, ability to
access finance and the ease of doing This process will be central to how we make investments.
business) and ensures we prioritise We will implement it through close partnership between
job-creating sectors. the investment teams and an enhanced Development
Impact team.
Investing to transform lives, Strategic framework 2017–2021 23Our strategic priorities
The Development Impact Grid The Grid has been highly effective
in directing our portfolio. It allocates
a higher score to investments in
Propensity of sector to generate employment
more challenging regions and
job-creating sectors.
2 3 4
High
4
Every investment receives a score
(1–4) based on how difficult the
geography is (horizontal axis) and
the propensity of the sector to create
Medium
1 2 3 4 jobs (vertical axis). It incentivises
investments in the hardest places
and in sectors where successful
investments will maximise new job
creation. For example, an investment
in a power plant in Sierra Leone
1 1 2 4
Low
will receive a maximum score of 4
as Sierra Leone is an ‘A’-rated country
(see page 47) and infrastructure is
D C B A a high priority sector.
Investment difficulty of country or state
To ensure we are making investments We will keep improving our 3. At individual investment level
which have the greatest impact, understanding and management We will track our progress towards
we will supplement the Grid score of the impact we can generate from the intended impact for every new
in our investment decision-making different investments so we can adjust investment or fund commitment, using
with two further steps: our investment strategy over time. whichever metrics will help us best
understand if we are achieving our
1. W
e will examine each potential Tracking progress ambition. This may include indirect
investment in the context of We will monitor data on the impact as well as direct impact. For example,
our sector strategies, and by its we have, at three levels: if investment is in a manufacturing
contribution to the impact we wish start-up, the desired impact may not
to achieve. These strategies identify 1. At the portfolio level just be creating jobs and paying taxes,
the key development needs for each We will show annually how many jobs but new businesses created in the
priority sector and help us target our portfolio created, both directly supply chain. We can then compare
businesses that will help develop and indirectly, using market-leading these to our long-term vision of impact.
and grow these sectors in the way methodology developed for us by With these measures in our portfolio
that has most impact. industry experts. We will also publish management process, we will be able
2. We will clearly define the primary the taxes contributed to local to agree what to do to enhance impact,
impact we want to achieve from exchequers and how much third-party in the same way we use financial
every direct investment and fund capital we mobilise. measures to guide our strategic and
commitment. The definition will be operational work during the life of
tailored to each investment and will 2. At a sector and thematic level
an investment.
cover a broader range of outcomes than We will collect and publish annual
is possible to capture in the Grid. It will aggregate data for certain metrics in Evaluation
allow us to track progress over time. each sector. In infrastructure, for Beyond monitoring data from our
example, we will track power generated portfolio, we will also commission
After each investment, we will measure and added capacity. We will also and publish at least ten independent
and manage our actual impact by monitor and report selected job quality, evaluations to better understand
collecting and analysing a range of data gender and climate change indicators. important related themes, such as the
at an investment, sector and portfolio On climate change, for example, the affordability of products and services
level. We will supplement this by indicators may cover renewable energy for poorer segments of society and the
commissioning thematic evaluations to and resource efficiency. impact of private healthcare companies
understand the link between investing on overall healthcare systems. These
and impact, especially in job creation. will bolster our knowledge, guide our
We will publish our results and share future investment strategies, and
lessons widely with various stakeholders. contribute to the wider understanding
of the development finance community.
24 Investing to transform lives, Strategic framework 2017–2021You can also read
