catalytic development capital: the opportunity for …...period 2016 - 2020.29 in 2017, it passed...

Why development capital matters for investors

With interest rates remaining low in developed markets and pressure mounting from society and asset owners to invest sustainably, some investors are looking to developing markets as a way to secure both competitive returns and positive social impact. However, the actual and perceived risks, as well as technical hurdles, can make it more difficult to realise these opportunities.

The markets of the future

Over the last 40 years, emerging and frontier markets have grown considerably. Today, these markets make up 55% of the world’s GDP,5 meaning their share of world economic output has doubled – from a quarter to around a half – since 1980.6 Over the next decade, a billion more young people will enter the job market in developing countries, and as many as 18 million extra jobs a year will be needed, creating an unprecedented talent and customer base for companies operating in these regions.

Private capital flows to developing countries are already growing to meet this financing gap. Between the years 2004 and 2014, private capital inflows to emerging markets more than doubled, from under £330 bn to over £900 bn annually.7 As of 2019, foreign private investment had caught up with foreign aid as a share of gross domestic product (GDP) for the median low-income country.8 This growth in foreign private investment is mirrored by the rapid growth in remittance flows to low- and middle-income countries.9 The World Bank expects remittance flows to low- and middle-income countries to reach £450 bn in 2019, making remittances their largest financing source. During 2018, remittance flows to low- and middle-income countries (£380 bn), excluding China, were significantly larger than foreign direct investment flows (£280 bn).10 These remittances provide spending power to consumers, supporting demand for new goods and services.

Making a positive impact

At the same time as developing markets are growing, sustainable investment11 strategies are taking off. These forms of investment are seen as critical to meeting the estimated US $2.5 – 3.0 trillion (tn) of financing per year12 (Figure 1) required for developing countries to meet the UN’s Sustainable Development Goals (SDGs).

The growth of sustainable investment is being driven by factors such as consumer demand, regulatory pressure, and growing awareness of risk, and enabled by a number of emerging frameworks to measure impact such as the Impact Management Project or PwC’s TIMM framework.13

New research from the Department for International Development (DFID), supported by PwC, shows that some 68% of people in the UK would opt for sustainable investments if they had the choice, and 61% would be more likely to make sustainable investments if they knew the investment would help protect the planet and lift people out of poverty.14 Around a quarter of UK investors agree that they would be interested in some of their money being invested in Africa, rising to 44% for those with over £25,000 of investable assets and 35% for young people, aged 18 - 39.15

5 Measured at purchasing power parity (PPP)6 Credit Suisse (2019) Global Investment Returns Yearbook. https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/csri-

summary-edition-credit-suisse-global-investment-returns-yearbook-2019.pdf ‘Emerging’ and ‘Frontier’ economies refer to a subset of developing countries.7 IIF (2013) https://www.iif.com/portals/0/files/private/cf_0613_2.pdf8 Center for Global Development (2019) https://www.cgdev.org/blog/foreign-private-investment-low-income-countries-more-important-you-think9 Remittances are funds that migrants transfer to their home country and are made up of private savings10 The World Bank (2019) https://www.worldbank.org/en/news/press-release/2019/04/08/record-high-remittances-sent-globally-in-201811 HMG (2019) Investing in a Better World: Understanding the UK public’s demand for opportunities to invest in the Sustainable Development Goals, Department for

International Development, September 2019. Sustainable Investment is defined broadly in this report, and in line with the definition provided in HMG’s (2019: p.6) ‘Investing in a Better World’ report, as “a broad range of of investment practices that consider impact on people and the planet alongside financial performance. This is intentionally broad and includes practices that both seek to avoid causing harm as well as those that seek to benefit stakeholders and actively contribute to solutions”.

12 United Nations (2019) https://www.un.org/sustainabledevelopment/wp-content/uploads/2019/07/EXEC.SUM SG-Roadmap-Financing-SDGs-July-2019.pdf13 See, for example, the Impact Management Project (www.impactmanagementproject.com) and PwC’s TIMM framework (https://www.pwc.co.uk/timm)14 HMG (2019) Investing in a Better World: Understanding the UK public’s demand for opportunities to invest in the Sustainable Development Goals, Department for

International Development, September 2019 https://assets publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/834207/Investing-in-a-better-wold-full-report.pdf

15 HMG (2019) Investing in a Better World: Understanding the UK public’s demand for opportunities to invest in the Sustainable Development Goals, Department for International Development, September 2019. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/834207/Investing-in-a-better-wold-full-report.pdf

2 | Catalytic development capital – The opportunity for investors | PwC

The growth of UK catalytic development capital

The UK has a long history in development finance, but in recent years has significantly expanded its use of catalytic development capital. The UK’s Development Finance Institution (DFI), CDC, was founded in 1948 and is the oldest of its kind.

Since the publication of the 2015 Aid Strategy28 the UK Government has allocated an increasing share of its Official Development Assistance (ODA) budget to catalytic development capital approaches. It established an ambitious target of investing at least £5 bn on development capital in the period 2016 - 2020.29 In 2017, it passed legislation to raise the cap on its investment into CDC from £1.5 bn to £6.0 bn, and subsequently allocated £736 million of capital to CDC in the fiscal year 2018/19.30,31,32. Other vehicles such as the Private Infrastructure Development Group (PIDG) and AgDevCo have also recently received new funds from DFID33 to support initiatives in infrastructure and agriculture development in developing countries.34

Catalytic development capital has also been a central theme in the UK Government’s recent efforts in Africa.35 In September 2018 the UK Government announced its aim to mobilise £8 bn of public and private investment in Africa, following the Prime Minister’s tour of the continent earlier in the year.36 The Government also subsequently announced plans for the first

UK Africa Investment Summit, currently planned for January 2020. The Summit’s primary objective is to increase investment into African economies, and secondarily to better position the UK to be the largest G7 investor in Africa by 2022.37 The role of the City of London in the new UK-Africa partnership is expected to be an important theme.

Opportunities created by UK development capital vehicles

The UK Government’s use of development capital creates opportunities for investors through a number of institutions, facilities and programmes (collectively called ‘vehicles’ in this report). Two key channels through which opportunities are created by these vehicles are:

• Increased investment universe: Investors have access to a wider array of funds, insurance vehicles, and infrastructure projects that meet their commercial criteria as a result of the UK’s catalytic development capital.

• Raising finance: Investors who are involved in creating funds, setting up infrastructure projects, and supporting firms have the potential to access preferential development capital to support their commercial viability, where positive impact can be demonstrated.

28 HMT/DFID (2015) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/478834/ODA_strategy_final_web_0905.pdf29 IFS (2018) – https://www.ifs.org.uk/uploads/publications/budgets/gb2018/GB8.pdf30 DFID (2019) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/815787/ARA-2019.pdf31 Legislation.gov.uk (1999) http://www.legislation.gov.uk/ukpga/1999/20/contents32 CDC Group (2019) https://www.cdcgroup.com/en/news-insight/news/news-cdc-welcomes-new-investment-from-the-uk-government/; IFS (2018) https://www.ifs.org uk/

uploads/publications/budgets/gb2018/GB8.pdf p. 261; House of Commons (2017) https://publications.parliament.uk/pa/cm201617/cmselect/cmpubacc/956/956.pdf33 The majority of UK catalytic development capital is provided by the Department for International Development (DFID). Since the 2015 UK Aid strategy, however, the UK

Government has spent an increasing share of its ODA budget through non-DFID departments, reaching 25.1% in 2018. These departments – including Defra, the FCO and BEIS – contribute to UK development capital but DFID remains the most significant player in UK Government through its sponsorship of CDC in particular.

34 For example, AgDevCo’s three latest investment announcements in 2019 have been projects in Côte d'Ivoire, Tanzania and Kenya, whilst PIDG’s have been in Jordan, Kenya and Pakistan.

35 These are concisely summarised here: http://www.royalafricansociety.org/sites/default/files/documents/New%20Approach%20to%20SSA-%20Provided%20by%20FCO%20Nov%202018.pdf

36 Gov.UK (2018) – https://www.gov.uk/government/news/uk-launches-ambition-to-generate-billions-more-investment-in-africa-to-trigger- transformational-growth37 https://www.gov.uk/government/topical-events/uk-africa-investment-summit-2020

The growth and aims of the UK’s catalytic development capital

The UK Government is increasingly using its overseas aid budget to deploy capital in ways that reduce risk for investors looking to operate in developing countries. The Government’s ambition is twofold: to deliver on its development mission of promoting sustainable, inclusive economic growth in poorer countries; and to cement the UK’s position as a global leader in developing market finance.


Landscape of UK development capital

38 DFID (2019) https://devtracker.dfid.gov.uk/39 The UK Government’s general budgetary support to MDBs such as the IFC has intentionally been excluded as the UK’s involvement in these vehicles is insignificant

relative to the other, more significant contributions that are made by other countries.40 $1:£0.82

The scale of UK development capital is significant and growing. We analysed 12 leading UK development capital vehicles – fund structures, programmes or financial instruments that use UK Government investment to increase, or ‘leverage’, private sector investment to create positive impact in developing countries. Together, these vehicles are likely to have an overall portfolio size of at least £15.9 bn and are budgeted to receive a total of £7.9 bn UK Government funding 2010-2026, demonstrating the significant opportunity available for investors to leverage this funding to access investment opportunities in Africa, the Middle East and Asia.

Overview of analysis

To our knowledge there is no comprehensive, publicly available overview of all development capital vehicles funded by the UK Government. To address this gap, we identified 12 vehicles (funds, programmes or instruments) for analysis from the UK Government’s Development Tracker (DevTracker) website and other official sources where relevant.38 We did not apply strict inclusion criteria but instead used the following guidelines to provide a cross-section of the most significant vehicles:

• A minimum budgeted UK ODA investment into the vehicles of £50 million or more over the years 2010-2026.

• Operational in Africa and/or Asia.

• Active in making new investments or recently closed.

• Significant UK Government share of the total contribution.39

We note that our analysis is not exhaustive and our coverage is unlikely to be comprehensive given data comparability challenges. However, we hope that it provides a useful overview of the current landscape for investors and other interested readers, and a basis for future development.

For the purposes of drawing comparisons between vehicles and to ensure consistency, some figures that were originally reported in USD ($), for example on portfolio size for selected development capital vehicles, have been converted into GBP (£), using a fixed exchange rate as of the time of writing.40 In the absence of more precise data about the timing of expenditure it is not possible to identify the exact exchange rate that would have applied at each transaction date. These figures should therefore be treated as indicative only.

The table below outlines the 12 development capital vehicles selected for analysis, provides a summary of how much capital the UK Government has allocated to each, and states the current estimated portfolio size. We have included an indication of portfolio size for each investment vehicle, but in many cases this was not available so we have provided proxies that give an indication of the likely order of magnitude of portfolio size.


UK International Climate Finance

The UK International Climate Finance (ICF) programme plays an important role in addressing global challenges at the intersection of climate change and international development. Three Government departments including DFID, BEIS and Defra have a mandate to manage and invest £5.8 bn of UK ICF in the five year period from 2016 to 2021.

The programme is a large contributor to some of the major multilateral climate funds such as the Green Climate Fund as well as to some of the largest MDBs such as the Asian Development Bank. Consequently, the ICF plays a key role in enabling the development of some of the largest investment vehicles that are included in this report.

UK Government department41

Development capital vehicle

HMG investment, 2010-202642

Indication of portfolio size and Basis of estimation

Development objective

Cross-departmental (DFID, BEIS)

CP3 – IFC Catalyst Fund

£130 million55 (2010-2026)

£343 million (per 2017)56

Based on fund size

The IFC Catalyst Fund focuses on providing capital to renewable energy projects and companies that develop resource-efficient, low-carbon products and services in the emerging markets.

CP3 – Asia Climate Partners (ACP)

£320 million (per 2014)57

Based on close value

ACP is dedicated to clean energy, resource efficiency and environmental sectors in emerging Asia.

Climate Investment Funds (CIF)

£1,988m (DFID £855m, BEIS £1,133m) (2009-2023)58

£6.6 billion (per 2019)Based on contributions from 14 countries

CIF aims to support development and poverty reduction through environmental protection, and help developing countries respond to climate change.

Business, Energy and Industrial Strategy (BEIS)

Global Climate Partnership Fund (GCPF)

£55 million (2013-2028)60

£547 million (per 2018)61 GCPF aims to use public funding to leverage private capital in order to mitigate climate change and drive sustainable growth in developing and emerging markets.

HM Treasury/DFID

Green Growth Equity Fund (GGEF)

£130 million (2017-2030)63

Total of £240m in anchor investments from the UK and India governments (with the aim to attract additionally £500m in institutional equity capital) (per 2018)

Based on contributions from UK and India governments

GGEF is aimed primarily at investments in clean energy infrastructure. It also seeks to raise additional capital from institutional investors for investments in renewable energy, clean transportation, water, sanitation, waste management and emerging technologies.

Totals £7.9 billion £15.9 billion

55 Gov.UK (2018) http://iati.dfid.gov.uk/iati_documents/50486463.odt56 IFC (2017) https://www.ifcamc.org/funds/ifc-catalyst-fund57 ISSUU (2016) https://issuu.com/designraphael/docs/greenfinance_text_10/1658 Gov.UK (2019) http://iati.dfid.gov.uk/iati_documents/45326578.odt59 Gov.UK (2019) http://iati.dfid.gov.uk/iati_documents/45326578.odt60 DevTracker (2019) https://devtracker.dfid.gov.uk/projects/GB-GOV-13-ICF-0011-GCPF61 GCPF (2018) https://www.gcpf.lu/files/assets/downloads/annual_reports/GCPF_AR-2018_web.pdf62 Set up by HM Treasury and now funded and managed by DFID63 Gov.UK (2017) http://iati.dfid.gov.uk/iati_documents/29091038.odt64 Since we are not aware of whether $500m has been crowded in through institutional equity, we have kept the figure of $240m. DevTracker (2018) https://devtracker.

dfid.gov uk/projects/GB-GOV-1-300418/documents


Catalytic mechanisms used by UK development capital vehicles

The vehicles described above deploy development capital through a variety of investment mechanisms under the heading of ‘catalytic capital’, with technical assistance also included as a key lever often used by development capital vehicles to improve investment performance.65 This includes concessional capital, where capital is provided on sub-commercial terms to increase private investment in the short and longer term, and risk mitigation mechanisms such as insurance and guarantees. The box below outlines the taxonomy of catalytic development capital used in this section.

The table below provides an overview of what catalytic capital investment mechanisms are at use in the vehicles selected for this report.

Table 2: Catalytic capital mechanisms used by selected UK Government vehicles

* Provided by the CP3 programme, not the specific separate funds (IFC and ACP).

Catalytic capital mechanism(s) used Description of mechanisms used

Vehicle Anchor capital

Concessional capital

Contingency capital

Technical Assistance

AgDevCo AgDevCo mainly provides debt and equity investments in addition to technical assistance, filling a ‘business incubator’ function within the agriculture sector in Africa.

CDC Group CDC mainly uses three means of investment: direct equity, intermediated equity and debt. A small portion (1%) of their investment is made as guarantees. CDC provides technical assistance to support its pipeline and portfolio companies, as well as the wider market in Africa and Asia.

FSDA FSDA provides a combination of grants and development capital investments (in the form of loans, equity and guarantees) through an investment fund, intending to help build financial markets and institutions.

GIF GIF offers grants, loans (including convertible debt), and equity investments ranging from £30,000 to £10 million.

PIDG PIDG provides many different types of capital, such as technical assistance, early stage investment, project development investments, debt, guarantees and mezzanine capital.

CP3 – IFC Catalyst Fund

* IFC provides private equity investments focused on providing capital to renewable energy projects and companies that develop resource-efficient, low-carbon products and services in the emerging markets. The CP3 programme also funds a Technical Assistance facility which provides grants.

CP3 – ACP * ACP undertakes commercially oriented private equity investments across a variety of environmentally supportive, low-carbon transactions throughout Asia. The CP3 programme also funds a Technical Assistance facility which provides grants.

65 Gov.UK (2018) https://assets.publishing.service.gov.uk/media/5ab0e81140f0b62d854a9bc5/Lessons_from_donor_support_to_technical_assistance_programmes.pdf

PwC | Catalytic development capital – The opportunity for investors | 11

Emerging investment opportunities in developing markets

To support this goal, we set out in the annexes to this report detailed descriptions of the various development capital vehicles available to support investors, looking at their overall size, typical deal size, market and sector focus, financial mechanism and so on. Our aim is to increase awareness among private investors of the opportunities for collaboration that exist.

In addition, in this section we set out the findings of some analysis of four of the development capital vehicles for which more detailed information is publicly available. This is intended to give an indication to investors of which sectors and geographies might be suitable for public-private collaboration.

Finally, we illustrate in this section a number of examples of successful private investments which have taken advantage of these development capital vehicles. This is intended to provide inspiration for future potential deals.

Sectoral and geographical concentration of investment opportunities

To illustrate the sectoral and geographical distribution of UK development capital investments, we assessed publicly available investment-level data from four of the most significant vehicles in our analysis: CDC,67 PIDG,68 AgDevCo,69 and GIF.70 The datasets published by each of the vehicles cover investments made into each country, investments made into each sector and includes the investment rounds that are currently active and those that have finished their funding rounds.

67 IATI (2017) (https://assets.cdcgroup.com/wp-content/uploads/2018/09/20130508/CDC-IATI-Submission-Commitments-2012-to-2017-20180404.csv) 68 PIDG (2018) http://data.pidg.org/projects/list.htm PIDG data used includes a small amount of private sector co-investment.69 AgDevCo (2019) https://www.agdevco.com/our-investments.html70 GIF (2019) https://www.globalinnovation.fund/our-investments

In this analysis, we used the latest available data at the desired level of granularity at the time of writing on portfolio commitments for each vehicle. We have aggregated the data from the four vehicles to provide an indication of the sectoral and geographical distribution of development capital deployment by these four UK government funded vehicles since 2003, but data limitations mean that this should be treated with appropriate caution:

• Data is more up to date for some vehicles than others so some recent transactions may not be included

• It is not clear as to whether all historic AgDevCo and GIF investments are included on their websites so it is possible that some older transactions may not be included.

Geographical distribution of development capital investments

The top three countries in Africa that received the most amount of investment were as follows: Nigeria, Ghana and Ivory Coast where a total amount of UK £4.6 bn has been invested by these vehicles over the last 16 years. In Asia, India, Pakistan and Iraq received the highest amount of investment, totalling just over UK £4.5 bn in overall blended finance investment.

We see a real opportunity for private investors to take greater advantage of the catalytic development capital made available by the UK. This can be achieved both through greater collaboration with the existing vehicles that the UK has financed, and also through dialogue between public and private sectors around what future products might lead to impactful co-investment.


Table 5: Capital invested by country for four development capital vehicles

Rank Country Development capital investment (£ mn)

% total Cumulative %

1 India 2,616 15 15

2 Nigeria 2,475 14 29

3 Ghana 1,129 6 35

4 Cote d’Ivoire 1,027 6 41

5 Pakistan 1,009 6 46

6 Senegal 1,003 6 52

7 Ethiopia 976 5 57

8 Kenya 975 5 63

9 Iraq 918 5 68

10 Mozambique 846 5 73

Other countries* 4,836 27 100

Total* 17,810 100

Rank Sector* Development capital investment (£ mn)

% total Cumulative %

1 Energy & mining 6,269 35 35

2 Telecommunications 2,811 16 51

3 Transport 2,538 14 65

4 Financial services 2,497 14 79

5 Infrastructure 2,049 12 91

6 Agriculture & food 572 3 94

7 Healthcare & water 230 1 95

8 Real estate & housing 195 1 96

9 Other 188 1 97

10 Industrials 178 1 98

Other sectors 283 2 100

Total* 17,810 100

*Other calculated as difference between value for top 10 countries and the total from the sectoral commitments analysis (see below)

Sectoral distribution of development capital investments

We classified investments by the four selected development capital vehicles into sectors, finding that two broad sectors cover more than half of the total invested and five broad sectors cover over 90% of investments.

*Investment by sector was grouped from the underlying data sources due to the different classification schemes used.


71 Gov.UK (2019) https://www.gov uk/government/speeches/matthew-rycroft-speech-on-impact-investing-to-unlock-more-capital-for-the-sustainable-developments-goals72 World Bank (2016) https://blogs.worldbank.org/allaboutfinance/challenge-how-do-we-measure-mobilisation-private-finance73 http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DCD/DAC(2018)25&docLanguage=En74 World Bank (2018) Reference Guide, http://documents.worldbank.org/curated/en/495061492543870701/pdf/114403-REVISED-June25-DocumentsPrivInvestMob-Draft-

Ref-Guide-Master-June2018-v4.pdf75 OECD (2015) http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DCD/DAC(2018)25&docLanguage=En 76 DevTracker (2019) https://devtracker.dfid.gov uk/projects/GB-GOV-1-300418

Progress in mobilising capital

The development capital vehicles profiled in this report aim to mobilise private sector capital and in turn contribute to closing the SDG financing gap. This section intends to provide a partial summary of the amount of private capital mobilised for the selected vehicles.

Mobilising Private Capital

The mobilisation of private sector capital is often seen as crucial to achieving the SDGs in developing countries. The importance of this was recently highlighted in a speech delivered by the DFID Permanent Secretary in September 2019, who highlighted the role of the private sector for meeting the goals.71 The speech recognised three key actions needed to increase capital flows into developing countries: establishing a pipeline of investable deals, developing the right products to mobilise the money, and responding to savers’ demands.

Definition of private capital mobilisation and methodology

Private capital mobilisation is the increase in private sector investment as a result of public sector activity and expenditure.72 The public sector and DFIs can, through their involvement in transactions and deployment of capital, increase the attractiveness of investments to private sector investors by addressing market failures. They also have an ability to increase awareness and willingness of the private sector to invest in new technologies, markets and sectors by demonstrating the investment potential, providing support to early stage projects and companies to help them reach commercial scale, and aggregating investments to increase how investable they are for the private sector.

Capital mobilisation can be direct or indirect.73 Direct capital mobilisation refers to private institutions co-financing alongside DFIs in a transaction structure. Indirect capital mobilisation relates to private investment which is enabled by, but does not involve directly, involve DFIs – for example via the demonstration effect or provision of anchor capital.

Two main methodologies are used to measure private capital mobilisation, developed by multinational development banks (MDBs) and the Organisation for Economic Cooperation and Development (OECD). In addition, some organisations use their own methodologies to measure private capital mobilisation. It is beyond the scope of this report to discuss the methodologies or differences between them, other than to note that the numbers produced by different methodologies are not directly comparable. Interested readers should refer to World Bank (2018)74 and OECD (2015)75 for an overview of the MDB and OECD approaches respectively.

Table 7 presents the amount of private capital that has been mobilised by the development capital vehicles analysed in Section 3 of this report, based on publicly available information at the time of writing. Please note that the numbers may not all be directly comparable in all cases due to differences in the scope, methodology and reporting of analysis conducted by or for each development capital vehicle. In some cases the analysis shows capital mobilisation attributable to UK government funding, whereas in other cases it refers to the vehicle as a whole. We have indicated this in the table where this information was available. The ARC and Global Parametrics (NDF) are not included in the table as they do not aim to leverage private sector capital in the same ways as the other vehicles and relevant data was not accessible at the time of writing. The GGEF is also not included in this table as we did not identify any public reporting on capital mobilisation achieved to date, as the fund is still in the implementation stage.76


Details of UK development capital vehicles

What is it?

CDC was established in 1948 as the UK's development finance institution, and is the oldest such organisation in the world. CDC invests returnable capital to promote private sector development in lower-income countries. Their goal is to support growth and jobs that lift people out of poverty and to make a financial return which is reinvested into more businesses. CDC published a new strategy in 2017 which aimed to: invest in new, higher-risk ways to tackle specific market failures in development; broaden development impact beyond job creation to include impact in areas such as climate change, skills and leadership, women's economic empowerment and job quality; find new ways to mobilise more private capital alongside their investments needed in developing countries; and improve transparency and accountability. CDC provides technical assistance to support its pipeline and portfolio companies, as well as the wider market in Africa and Asia.

Deal Size & Impact

Average Deal Size:

• Direct Equity – $10m-150m

• Intermediated Equity – $5m-150m

• Debt – $20m-100m

Investment Focus: CDC targets a return of 3.5% on the investments in its ‘Growth Portfolio’; since 2012 the average financial return of its Growth Portfolio (in Sterling) has been 9.2%

Impact Reported (by businesses in CDC’s portfolio):

• Job creation: employed 852,130 people.

• Access to financial services: for over 72.2 million customers.

• Access to power: generated and distributed over 48,724 gigawatt hours (GWh) of electricity (in 2017)

Type of Capital Provided

CDC provide flexible long term investment to businesses in developing countries in three principal means:

• Direct Equity: provided to businesses in Africa across CDC's priority sectors.

• Intermediated Equity: CDC invests in country-focused funds in priority sectors in Africa and South Asia, supporting 70 funds.

• Debt is provided to businesses and projects in four ways: project finance, corporate lending, trade finance, and lending to financial institutions.

Product breakdown of portfolio: 47% intermediated equity, 35% direct equity, 17% debt, 1% guarantees.

Vehicle

CDC Group PLC

Managed by

CDC (UK Development Finance Institute)

Government Department

DFID

Other Funders

DFID is CDC’s only shareholder

Size

Total net assets: £5.8 billion

Portfolio size: £4.3 billion

Geography

Africa and South Asia

Sector Focus

In order of proportion of investment commitments: Infrastructure, Financial Services, Food and Agriculture, Health, Education, Manufacturing, Construction


Private Capital Leveraged:

• CDC state that they mobilise $41 for every $100 of their own commitments.

• Based on MDB and OECD methodologies, in 2018, between $570m and $576m of private capital was mobilised alongside CDC's own investments.

Methodology for Calculating Mobilisation: CDC report using both their own methodology, and the OECD and MDB methodologies.

Example of Private Sector Co-Investment: Standard Chartered – $400million risk participation arrangement to guarantee transactions for banks operating in both Africa and South Asia.


What is it?

PIDG is an innovative infrastructure development and finance organisation delivering pioneering infrastructure in the poorest and most fragile countries. PIDG acts through subsidiary companies which offer specialised financing and project development expertise focused solely on infrastructure. It operates through three business lines: upstream technical assistance; project development; project financing and investment.

A key part of PIDG’s mission is to mobilise private sector funding; they leverage donor funding, blending it with private sector investment from local, regional and international sources, and debt or equity from Development Finance Institutions (DFIs).

Specific facilities within the vehicle include:• EAIF (The Emerging Africa Infrastructure Fund) provides

long-term debt on commercial terms to private sector companies building or expanding infrastructure in Africa.

• GuarantCo provides innovative local currency contingent credit solutions, including guarantees to banks and bond investors to develop local capital markets.

• InfraCo Africa provides early stage project development capital and expertise and is a catalyst for the private sector to invest in sustainable infrastructure projects in sub-Saharan Africa.

• InfraCo Asia provides early stage project development capital and expertise and is a catalyst for the private sector to invest in sustainable infrastructure projects in South and South East Asia.

• GAP provides financing and support for renewable projects in Africa.

Deal Size & Impact

Deal Size Information: Varies by facility

Investment Focus: PIDG has achieved average returns of 6-10% on its investments. PIDG provides a variety of financial products and therefore expects a range of returns from returnable grants, to impact investing, to EAIF and GuarantCo seeking social and environmental change alongside financial return.

Impact Reported (since 2002):

• 183 projects reached financial close, 87 in Fragile & Conflict-Affected States

• 243.1 million people with access to new or improved infrastructure

• 240,688 long-term jobs created

• 59,295 short-term jobs created

• 113 projects became commercially operational

Vehicle

Private Infrastructure Development Group (PIDG)

Managed By

Various


DFID

Other Funders

DGIS/FMO, SECO, Sida, DFAT, KfW, IFC

Size

PIDG has invested $3.6 billion since 2002 DFID has spent £582 million since 2012

Geography

Global

Sector Focus

Infrastructure – energy, industrial infrastructure, transport, housing, urban infrastructure, agro-infrastructure, capital market development, WASH


Private Capital Leveraged: Every $1 of PIDG member funding has mobilised $23, of which $17 has come from private sector financing. Since 2002, PIDG has mobilised $23.4 billion from the private sector into PIDG supported projects. In 2018, $4.5 billion was mobilised alongside PIDG.

Methodology for Calculating Mobilisation: PIDG monitors its private sector investment mobilised using both the OECD methodology and its own approach.

Example of Private Sector Co-Investment: The EAIF raises its debt capital from public and private sources, including Allianz, the global insurance and financial services company; Standard Chartered Bank; the African Development Bank; the German development finance institution; KFW; and FMO, the Dutch development bank.


Technical Assistance, Early Stage investment, Project Development Investment, Debt, Guarantees, Mezzanine – PIDG operates collaboratively along all stages of an infrastructure project’s life-cycle:

• They provide upstream technical assistance through:

– Technical Assistance Facility (TAF): provides grants to support PIDG companies at any stage of project lifecycle.

– DevCo: helps fund PPP advisory services to governments, delivered through IFC.

• They provide investment through InfraCo Africa and InfraCo Asia to originate, develop, structure, invest and manage projects and make equity investments in innovative and pioneering projects.

• They provide credit solutions through debt, guarantees and mezzanine finance via the EAIF, which provides long-term foreign currency loans in Sub-Saharan Africa, and GuarantCo which provides innovative local currency contingent credit solutions, including guarantees to banks and bond investors.


What is it?


ARC enables African governments to insure themselves against weather-related natural disasters and respond quickly to save lives and livelihoods. The ARC enables a faster recovery response rate compared to humanitarian appeals, as payout to disasters is linked to pre-approved plans. These payouts are triggered when certain measures are met (e.g. when rainfall exceeds a particular figure) and are paid out to Governments to enable them to build and plan appropriate responses. Consequently, this supports African Governments to build their capacity to respond to natural disasters, by helping them to implement efficient and sustainable solutions for their own country needs. These payouts can be up to $30 million, depending on the size of the hazard.

ARC pools African governments’ insurance into a large African Climate Risk Insurance pool that is sold on financial markets. Grouping countries’ risk enables ARC to sell insurance more cheaply to governments. DFID approved the ARC in March 2014 and supports it by providing up to £90 million in development capital and up to £10 million in technical assistance through the ARC Agency.


Insurance – ARC uses a weather-based index measurement called Africa RiskView as a parametric trigger for its payouts.

Private Capital Leveraged: N/A

Methodology for Calculating Mobilisation: N/A

Example of Private Sector Co-Investment: N/A

Deal Size & Impact

Maximum Deal Size: Maximum coverage of US $30 million per country per season

Investment Focus: N/A

Impact Reported:

• 2.1 million vulnerable people assisted

• US $36.8 million has been paid out in early responses

Vehicle

African Risk Capacity (ARC)

Managed By

African Risk Capacity Insurance Company Limited


DFID

Other Funders

KfW, Rockefeller Foundation, International Development Bodies

Size

N/A

Geography

Africa

Sector Focus

Insurance


Deal Size & Impact



AgDevCo is an agricultural investor and project developer in Africa. It provides mainly debt and equity investments into Small and Medium Enterprise (SME) agri-businesses, while also offering match funding to commercial businesses to support smallholder farmer programmes. Its aim is to reduce poverty and increase food security by catalysing additional private sector capital. This is achieved by delivering capital and technical assistance to businesses to help them move from subsistence to commercial-scale farming. DFID provides £154 million of support and re-deployable capital over 10 years into AgDevCo.

Debt, Equity, Technical Assistance – AgDevCo uses these types of capital to address the financial and technical constraints SMEs face in agricultural value chains, thus enabling them to perform a ‘business incubator’ function.

Private Capital Leveraged: £163.3 million

Methodology for Calculating Mobilisation: DFID methodology used to calculate private capital leveraged.

Example of Private Sector Co-Investment: MasterCard Foundation – $15.4 million initiative to boost incomes of smallholder farmers in seven African countries.

Average Deal Size: $2 million - $10 million

Investment Focus: Development Impact

Impact Reported: 11,500 jobs created/maintained

Vehicle

African Agriculture Development Company (AgDevCo)

Managed By

AgdevCo


DFID

Other Funders

MasterCard, DGIS, Small Foundation and, Norwegian Ministry of Foreign Affairs and Royal Norwegian Embassy

Size

$128 million

Geography

Africa

Sector Focus

Agriculture

What is it?


Deal Size & Impact


FSD Africa aims to reduce poverty across sub-Saharan Africa by building the capacity of financial markets and making them more efficient, robust and inclusive. It takes a market systems development approach as it seeks to address the structural causes of poverty by improving the functioning of financial market systems. To achieve their objectives, FSDA can provide a combination of grants, investment capital, market insights or technical assistance.

FSDA has a specific development capital arm called FSD Africa Investments which provides early-stage, risk-bearing capital. Its investments focus on: solutions that increase access to finance for small firms and financial services for local communities; firms that increase access to housing, clean energy, electricity, water and sanitation through innovative financial solutions; and ventures which strengthen capital markets. In September 2019, FSD Africa Investments announced it would be receiving an additional £90 million of UK aid money; its intention is that through this money it will unlock over £500 million of private sector finance for SMEs, businesses and entrepreneurs. FSD Africa Investments received an initial capital allocation of £30 million from UK aid.


Loans, Equity, Guarantees and Grants

Private Capital Leveraged: To date FSDA has mobilised £820 million of private capital; this equates to an additional £40 of private sector capital, for every pound invested by FSD Africa.



Deal Size Information: N/A

Investment Focus: Target return on investment is dependent on the terms of the loan provided

Impact Reported:

• Supported the financial inclusion of 3,583,849 people (41% of which are women)

• Developed approximately 82 regulations/policies to strengthen financial markets in Sub-Saharan Africa.

Vehicle

Financial Sector Deepening Africa (FSDA) Platform

Managed By

FSD Africa


DFID

Other Funders

DFID is the sole funder

Size

N/A

Geography

Africa

Sector Focus

Financial Services

What is it?


Deal Size & Impact



The Global Innovation Fund is a socially orientated impact investment fund that acts as a venture capitalist for start-up businesses from their early stages to larger scale implementation in developing countries. It offers evidence-based and cost-effective solutions that have the potential to measurably improve the lives of millions of people who live on less than $5 a day. GIF provides financing at three different stages to meet innovator’s needs: Pilot, Test & Transition, Scale. DFID is currently providing £50 million in support to help create this stand-alone, market-facing organisation.

Debt, Equity, Loans, Grants – GIF provides financial assistance of £30,000 - £10 million to social innovations that aim to transform the lives and opportunities of people living in poverty. To be eligible for funding, organisations must demonstrate how GIF’s investment will have a significant societal impact.

Private Capital Leveraged: For every $1 of risk capital GIF has invested, they have mobilised an additional $4.31 of less risk-tolerant capital (not limited to the private sector).


Example of Private Sector Co-Investment: Warburg Pincus co-invested with GIF for OnlinePajak, a tax compliance solutions provider in Indonesia.

Maximum Deal Size:

• Pilot Stage: $230,000

• Test & Transition Stage: $2.3 million

• Scale Stage: $15 million


Impact Calculated: Impact = Breadth of Impact x Depth of Impact x Probability of Success.

Vehicle

Global Innovation Fund

Managed By

GIF


DFID

Other Funders

USAID, Omidyar Network, Sida, DFAT

Size

$200 million

Geography

Africa, Asia, Central America

Sector Focus

Public Health & Nutrition, Social Protection, Agriculture, Energy, Education

What is it?


Global Parametrics Natural Disaster Fund is a disaster risk insurance fund seeking to catalyse developing country markets for insurance-like products. Its aim is to enable frontier economies to recover from disasters more rapidly by providing insurance products and solutions to protect the private sector and non-state entities against natural disaster risk. It offers parametric protection grounded in data, selling protection to NGOs, microfinance providers and municipalities. The risk of natural disasters are shared with third-party investors via the NDF.

DFID will provide £37 million from 2013 - 2021 to support this programme. This includes £1.5 million in equity and £6.4 million in debt into the Global Parametrics company. It will also provide £25 million into the Natural Disaster Fund.


The NDF provides risk financing for its target markets. NDF subsidises the cost of insurance facilities to make it more attractive from both the buy and sell-side of the deal.


Private Capital Leveraged: N/A



Deal Size & Impact



Impact Reported: Provided access to recovery lending to 690,000 families in 2018. Recovery lending provides an income for people impacted by weather-related events to help them rebuild their lives and businesses.

Vehicle

Global Parametrics – Natural Disaster Fund (NDF)

Managed By

Global Parametrics Holding Company Ltd


DFID

Other Funders

KfW

Size

$128 million

Geography

Global

Sector Focus

Insurance

What is it?


Deal Size & Impact



Established in 2008, Climate Investment Funds aims to accelerate climate change action by empowering transformations in developing countries across the clean technology, energy access, climate resilience and sustainable forests sectors. It is a dedicated fund to pilot new approaches. CIF has received £900 million in support from the UK through the International Climate Finance (ICF) body, funded predominantly by DFID and BEIS. Specific funds within the vehicle include the Clean Technology Fund (CTF) and Scaling up Renewable Energy Program (SREP).

Equity, Loans, Guarantees and Local Currency Hedging

Private Capital Leveraged: CIF’s projects are leveraging £15.6 billion in private sector co-financing




Investment Focus: N/A

Impact Reported: N/A

Vehicle

Climate Investment Funds (CIF)

Managed By

CIF


DFID/BEIS

Other Funders

Other international development bodies

Size

£8 billion

Geography

Global

Sector Focus

Energy, Forests, Land Use, Technology

What is it?


Deal Size & Impact



Asia Climate Partners (ACP) is one of two funds within CP3. ACP seeks to partner with established environmental businesses, with sound operating fundamentals and strong growth potential that benefit from the rapid macroeconomic and environmental dynamics in the target regions. ACP targets a broad spectrum of investment opportunities across three sector groupings: renewable energy; resource efficiency; and environmental industries. Asia Climate Partners’ investment period has now ended, which means the Fund will not make any new investments and instead focus on managing ACP’s existing assets.

The UK government provided a £60 million initial capital commitment into the fund.

Funds of funds (private equity funds). The CP3 programme also funds a Technical Assistance facility - Seed Capital Assistance Facility (SCAF) providing grants.

Private Capital Leveraged: As of September 2019, Asia Climate Partners and IFC Catalyst Fund had cumulatively mobilised £102,959,275 of private finance.

Methodology for Calculating Mobilisation: CP3 methodology


Deal Size Information: Ticket sizes are typically between £20 million and £65 million per portfolio company as single transactions, or in a milestone-based growth plan.

Investment Focus: Climate Impact

Impact Reported: As of September 2019, ACP had achieved

• 306 MW of installed capacity of clean energy

• 884 ‘green jobs’ created

• 731,838t CO2e avoided/reduced

Vehicle

Asia Climate Partners

Managed By

Asia Climate Partners (Consortium of ADB, ORIX and Robeco)


BEIS and DFID

Other Funders

N/A

Size

ACP reached final close in May 2017 at $447.6 million

Geography

China, India, and Southeast Asia

Sector Focus

Renewable energy, renewable efficiency, and environmental industries

What is it?


Deal Size & Impact


The Global Climate Partnership Fund (GCPF) finances energy efficiency and small scale renewable energy projects in developing countries whilst giving Technical Assistance to build the green lending capacity of local banks and reducing investment risk. It predominantly works through local financial institutions, extending credit lines so they can offer loans for small scale low carbon projects. GCPF can finance a wide variety of loans including energy efficient appliances/machinery, hybrid cars and small-scale renewable energy such as rooftop solar.

The Fund is structured into 3 tranches of shares, A, B and C. The UK’s investment is in C-shares. The UK and other donors’ C-shares act as a risk cushion for A and B shares. BEIS is investing £54.6 million over 15 years (2013 to 2028) with spend to date of £26.3 million. The process for paying returns from the revenues accrued follows a waterfall principle: A-share returns are paid first, then B, then C. There is also a super senior tranche in the form of time-bound notes (debt) that targets private sector institutional investors. Public funds invested in GCPF therefore catalyse additional private finance into the fund, thus increasing the impact of the fund and providing strong value for money.

Direct funding in the form of senior debt (project finance as well as corporate loans), and Technical Assistance.


Private Capital Leveraged: As of the end of 2017, GCPF had raised $198.75m of private sector investment, thus bringing the share of private investors to over 30% of total liabilities.


Example of Private Sector Co-Investment: ASN Bank, a fully-owned subsidiary of Dutch retail bank SNS Bank, was the second private institution to invest in GCPF when in June 2016 it invested $25 million in a note issued by GCPF. The first private investment was made in 2012 when a $30 million note was acquired by a German pension fund.

Deal Size Information: A typical loan is between $8 million and $15 million

Investment Focus: UK Investment in GCPF is expected to, among others:

• Mobilise additional private climate finance

• Leverage co-finance from MDBs and other donors

• Build a track record of successful low carbon investments

• Result in expected lifetime GHG emissions savings ranging from 3 to 8 MtCO2e.

• Mobilise and scale-up finance and investments in EE and RE in the near term

• Provide a return on UK investment – repayment of the initial capital £30m and returns estimated around £1.3-3.4m for a 5 year investment, up to $3-11.5m over a 15 year investment horizon (based on a range of returns of 0.54% to 2.2%).

Impact Reported: Projects financed in 2018 alone accounted for 2.8 million t of expected lifetime CO2 emission reductions, bringing the total to 12.8 million.

Vehicle

Global Climate Partnership Fund

Managed By

responsAbility Investments


BEIS

Other Funders

Investors include three donor governments (Germany, Denmark, UK), DFIs (KfW, FMO, IFC, OeEB and EIB) and private investors (wealth management funds, pension funds and a commercial bank)

Size

$667 million

Geography

South Asia, Southeast Asia, sub-Saharan Africa

Sector Focus

Energy

What is it?


IFC Catalyst Fund is one of two funds within the CP3 (Climate Public Private Partnership Programme), which is a joint DFID and BEIS initiative funded by the UK’s ICF. CP3 consists of three components: investments in private equity through the IFC Catalyst Fund and Asia Climate Partners, and a separate Seed Capital Assistance Facility. In total, the UK Government has committed £130 million to the CP3 programme, of which £110m is invested in the two commercial private equity funds, and £20 million in the form of grants.

The IFC Catalyst Fund invests in private equity funds, platform companies, and co-investments focused on providing capital to renewable energy projects and companies that develop resource-efficient, low-carbon products and services in the emerging markets. As of September 2019, the Fund had invested in 12 private equity funds, 2 platform companies, and made one co-investment. These funds have in turn made 102 investments. The fund’s investment period closed in 2018.

Government investment: £50m anchor investment over 16 years (2010 - 2026)


Funds of funds (private equity funds). The CP3 programme also funds a Technical Assistance facility – Seed Capital Assistance Facility (SCAF) providing grants.


Private Capital Leveraged: As of September 2019, Asia Climate Partners and IFC Catalyst Fund had cumulatively mobilised £102,959,275 of private finance.

Methodology for Calculating Mobilisation: CP3 methodology


Deal Size & Impact


Investment Focus: Climate Impact

Impact Reported: As of September 2019, IFC Catalyst Fund had achieved

• 423 MW of installed capacity of clean energy

• 1,179 ‘green jobs’ created

• 484,559t CO2e avoided/reduced

Vehicle

IFC Catalyst Fund

Managed By

IFC Asset Management Company


BEIS and DFID

Other Funders

LIST

Size

The Catalyst Fund closed in June 2014 at $418m

Geography

Global – Emerging Markets

Sector Focus

Renewable energy and resource efficiency

What is it?


The Green Growth Equity Fund (GGEF), promoted jointly by India’s NIIF and the UK along with complementary technical assistance, aims to leverage private sector investment to finance investments in the green infrastructure space in India. The Fund will deliver development impact by investing in infrastructure sectors that contribute to inclusive growth whilst applying high environmental, social and governance (ESG) standards.

The GGEF will help India address a key constraint to inclusive economic and social development by boosting investment into infrastructure leading to growth, job creation and poverty reduction. As a secondary benefit, the Fund is expected to open opportunities for UK investors to participate in the Fund and for UK companies to participate in the range of projects that are financed by the Fund.

A key objective of establishing the Fund is to crowd in private investment both at the fund level through shared equity and at the project level through co-investment. It is expected that this equity (around £700m in total after Fund Manager fees) will leverage additional private debt capital of approximately £2 billion at the project level (equity to debt ratios are usually 1:3).

The UK government is investing £130 million over 11 years (2018 to 2029) with a spend to date of £13.2 million.


Equity (long-term equity investments in infrastructure), and technical assistance.


Private Capital Leveraged: the fund-level private equity ratio target is 1:2.



Deal Size & Impact


Investment Focus: Along with social, domestic and environmental impacts, the potential financial return to the UK capital investment is a risk-adjusted average return on equity of 1.6.

Impact Reported: N/A

Vehicle

The Green Growth Equity Fund (NIIF sub-fund)

Managed By

EverSource Capital


FCO (through the Prosperity Fund) and DFID

Other Funders

India’s National Investment and Infrastructure Fund (NIIF)

Size

£500 million

Geography

India

Sector Focus

Renewable energy; energy distribution & transmission; clean transportation; water treatment; waste management

What is it?


Contacts

Paul GeorgePartner, International Development

E: [email protected]

John TressDirector, Development Finance


Oliver WillmottManager, Impact Measurement


Lizzy FitzgeraldManager, Development Finance


Marie-Justine LabelleManager, Climate Finance



Notes


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